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COMMERCIAL  CRISES 


OF   THE 


NINETEENTH    CENTURY 


BY 


H.    M.    HYNDMAN 

AUTHOR   OF 

'THE    BANKRUPTCY   OF    INDIA,"    "  THE    HISTORICAL    BASIS   OF    SOCIALISM    IN 

ENGLAND,"    "ENGLAND    FOR    ALL,"    ETC.,    ETC. 


LONDON  :    SWAN    SONNENSCHEIN    &    CO. 
>[EW   YORK:    CHARLES   SCRIBNER'S   SONS 

1892 


PREFACE. 


HE 

37/6 


It  suggested  itself  to  me  to  write  this  little  book 
when  I  read  certain  letters  which  appeared  in  the 
Times  last  year  in  answer  to  some  letters  of  my  own 
in  that  journal  on  "  The  Coming  Crisis  in  Trade."  My 
opponents,  it  was  manifest,  had  never  carefully  con- 
sidered how  it  came  about  that  these  crises  should 
continually  recur  during  a  period  when  the  power  of 
mankind  to  produce  wealth  was  increasing  with 
greater  rapidity  than  ever  before  in  the  history  of 
the  world.  I  have  endeavoured  in  the  following- 
pages  to  give  a  brief  but,  I  hope,  clear  sketch  of  such 
crises  during  the  present  century. 

]\ly  indebtedness  to  Herr  Max  Wirth's  elaborate 
work,  "  Geschichte  der  Handels  Krisen,"  in  regard  to 
the  details  of  the  earlier  crises,  I  hereby  cordially 
acknowledge. 

H.  M.  H. 

LoxDOX,  February,  1892. 


X  V  J  y  ^.  ^k./ u3 /^ 


CONTENTS. 


CHAT.  PAGE 

PR K I  ACE           -              -              -              -              -              -  iii 

INTRODUCTION                -----  i 

I.   THE  CRISIS  OF    1815    -                -                -                -               -  I? 

II.    THE  CRISIS  OF    1825    -                -                -                -                -  24 

III     THE  CRISIS  OF    1 836- 1 839        -               -                -                -  39 

IV.  THi;  CRISIS  OF  1847  -            -            -            -            -  54 

V.    THE  CRISIS   OF    1857    -               -               -               -                -  63 

VI.    THE  CRISIS  OF   1866   -               -               -               -                -  89 
VII.    THE  CRISIS  OF    1873   "               '               "               "               "99 

VIII.    THE  CRISIS  OF    1882    -----  128 

IX.    THE   CRISIS   OF  1890   -----  142 

X.    REMEDIES          ------  163 


INTRODUCTION. 

The  causes  and  effects  of  industrial  crises  must  be 
reckoned  among  the  most  important  subjects  for 
consideration  in  the  concluding  years  of  the  nine- 
teenth century.  From  time  to  thne  all  civilised 
countries  are  now  exposed  to  a  complete  upset 
of  their  industrial,  commercial,  and  financial 
machinery,  at  the  very  moment  when  the  great 
majority  even  of  those  who  are  directly  engaged 
in  business  imagine  that  trade  is  at  its  best  and 
that  no  danger  threatens  them.  Suddenly,  in 
the  midst  of  the  greatest  apparent  prosperity, 
when  the  promoters  and  contractors  have  their 
hands  full  of  work ;  when  merchants  and  traders 
are  congratulating  themselves  on  the  extent  of 
tlieir  turnover;  when  manufacturers,  mine-owners 
and  shipping  companies  are  dividing  most  satis- 
factory profits  ;  and  when  the  workers  are  being 
paid  a  somewhat  better  rate  of  wages — at  that 
juncture  a  change  for  the  worse  begins.  Prices, 
which  have  risen  all  along  the  line  of  commodities 
that  enter  into  our  social  life,  fall  with  great 
rapidity,  uneasiness  and  distrust  spread  through- 
out the  business  community,  there  is  a-  rush  to 
obtain  money  either  _^by  sales  of  securities  and 
goods,  or  by  obtaining  advances  from  the  banks  ; 
and  a  nation,  or  as  is_now  commonly  the  case,  a 

A 


INTRODUCTION. 


whole  group  of  nations,  finds  itself  in  the  midst 
of  a  dangerous  crisis,  without  knowing  the  why 
or  the  wherefore  of  the  crash. 

Now  if  this  recurrence  of  financial  and  in- 
dustrial disasters  could  be  traced  to  well-defined 
natural  causes,  mankind  would,  in  this  as  in  other 
cases,  be  compelled  to  accept  the  inevitable,  and 
make  preparations  to  lessen  the  mischief  which 
may   be    done.       Earthquakes,    droughts,    tidal 
waves,  hurricanes,  swarms  of  locusts,  epidemics, 
have  all  brought  about  serious  disturbances  in 
trade  at  different  times ;  and  some  of  the  dis- 
turbances thus  occasioned  have  had  more  than 
local  or  temporary  effects.     As  science  advances 
and    knowledge   spreads,    w^e   may   succeed^  in 
counteracting  some  of  the  injury  done  to  society 
by  these  convulsions  of  nature,  and  in  limiting  the 
ravages  due  to  others  which   are  in  a  certain 
degree  open  to  human    control.      But  nobody 
hnagines  that  they  will  ever  be  finally  stopped, 
04-  that  within  a  conceivable  period  our  descen- 
dants will  have  the  poAver  to  order  the  Avinds 
and  waves  to  be  still,  even  if  drought  proves  to 
be,  like  monarchs,  amenable  to  skilfully-used  ex- 
plosives in  the  higher  air. 

Many  of  the  trade  difficulties  of  ancient  times 
and  of  the  middle  ages  can  be  directly  traced  to 
drought,  or  to  flood,  in  the  same  way  that 
famine  due  to  similar  causes  has  a  prejudicial 
effect  upon  commerce  in  China,  in  India,  in 
Russia,  and  even  to  a  certain  extent  in  Europe 
and  America  to-day.  Such  troubles,  it  is  uni- 
versally recognised  now-a-days,  should  be   met 


INTRODUCTION. 


by  freely  using  the  surplus  of  one  country,  or  one 
district,  to  make  up  the  deficiency  in  another. 
Formerly,  periods  of  scarcity  were  prepared  for 
by  the  establishment  of  granaries  and  grain  pits, 
which  were  not  opened  until  such  time  as  the 
failure  of  the  crops  in  the  particular  region 
affected  had  deprived  the  people  of  their  annual 
food  supply  ;  and  it  is  more  than  probable  that, 
in  our  modern  zeal  for  applying  the  latest 
methods  of  western  civilisation  to  communities 
in  quite  a  different  stage  of  social  and  economical 
development,  this  method  for  providing  against 
a  rainless  day  has  been  foolishly  abandoned. 

It  is  certain,  at  any  rate,  that  at  no  period 
prior  to  the  growth  of  what  is  now  known  as 
the  capitalist  system  of  production — the  system 
oTproduction,  that  is  to  say,  of  articles  of  social 
use  for  profit,  by  free  labourers  who  are  paid 
waQ-es — did  difficulties  arise  in  the  trade  or 
finance  of  any  community  from  an  actual  super- 
fluity of  the  wealth  which  the  members  of  that 
community  needed  in  their  daily  life.  Famine,  in 
former  generations,  of  course  attacked  the 
poorer  members  of  society  first,  and  in  the 
ancient  slave-supported  civilisations,  as  well  as 
under  the  feudal  regime,  the  contrast  between 
the  Avell-being  of  the  few  in  "  ]iard  times,"  as 
compared  with  the  want  and  misery  of  the 
many,  was  in  some  respects  as  striking  as  it  is 
to-day.  But  still  the  crucial  distinction  between 
our  own  and  any  former  period  in  the  world's 
history  remains  —  that  the  times  of  greatest 
distress  for  the  mass  of  the  people  now  are  the 


INTRODUCTION. 


times  when  there  is  a  complete  glut  of  the  com- 
modities wliich  they  need  and  which  they 
make. 

Local  gluts  and  national  crises  due  to  the 
same  cause,  which  now  take  so  wide  a  range, 
have  been  recorded  before  the  present  century. 
Economists  were  anxious  to  account  for  them, 
and  philanthropists  were  eager  to  remedy  them, 
in  the  seventeenth  and  eigfliteenth  centuries.  As 
the  growing  influence  of  the  middle-classes  due 
to  the  extension  of  their  political  power  was 
felt,  and  as  the  restrictions  imposed  by  the 
elaborate  balancing  of  interests  in  the  feudal 
system  slowly  gave  way  before  the  spread  of 
commerce  and  the  widening  of  the  local  into 
a  national  market,  the  tendency  to  hiflation 
followed  by  corresponding  depression  made  it- 
self manifest  more  clearly. 

The  local  difficulty  of  transmitting  goods  pro- 
duced for  profit  into  money  appeared  then  as  a 
national  difficulty.  At  the  end  of  4he  seven- 
teenth century  such  crises  were  recognised  and 
partially  analysed  by  John  Bellers,  who,  in  a 
passage  quoted  by  me  some  years  ago  from  his 
"  College  of  Industr}',"  puts  the  matter  thus  : — 
"  In  the  common  Avay  of  living  on  trade,  men, 
their  wives  or  children,  often  lose  half  what  they 
get  either  by  dear  bargains,  bad  debts  or  laAv 
suits  of  which  there  will  be  neither  in  the 
college ;  and  if  the  earth  gives  but  forth  its  fruit, 
and  workmen  do  but  their  parts,  they  will  have 
plenty;    whereas    now,    the    husbandmen    and 


mechanics  both  are  ruined,  though  the  first  have 


INTRODUCTION. 


a  great  crop  and  the  second  industriously  maketh 
mucli  manufacture.  Money  and  not  labour 
being  made  the  standard,  the  husbancbnan  pay- 
ing the  same  rent  and  wages  as  when  the  crop 
yielded  double  the  price  ;  it  being  no  better  with 
the  mechanics,  where  it's  not  who  wants  his 
commodity,  but  who  can  give  him  money  for 
it  (will  keep  him) ,  and  so  often  he  must  take 
half  the  value  in  money  another  would  give  hhn 
in  labour  that  hath  no  money." 

Here  the  difficulty  is  to  bring  the  two  pro- 
ducers of  wealth  together  by  reason  of  the 
necessity  for  converting  commodities  into  money. 
Though  also  in  this  case  a  particular  set  of 
workers  are  spoken  of  as  if  they  were  produc- 
ing for  their  own  profit,  the  fact,  of  course,  is 
that,  under  the  system  of  production  in  which 
the  capitalist  class  employs  the  wage-earners  to 
produce,  the  profit  is  realised  by  the  employers 
and  not  by  the  actual  producers. 

Now,  so  long  as  the  labourer,  be  he  husband- 
man or  mechanic,  makes  goods  for  his  own  use, 
or  to  the  direct  order  of  his  customers,  or  for 
the  supply  of  a  local  and  limited  market,  he  is 
in  control  of  his  tools,  of  his  farm  or  workshop, 
of  his  raw  material,  and  owns  his  product. 
Thus,  though  he  does  produce  primarily  for  his 
own  individual  advantage,  and  not,  as  was  the 
case  under  the  old  communal  and  s^entile 
arrangements,  for  the  advantage  of  the  whole 
society  in  which  he  himself  was  included  as  a 
unit,  yet  he  is  not  producing  wholly  and  solely 


with  a   view   to    exchange   on  a  great  general 


IJ^TRODUCTION. 


market ;  and,  above  all,  his  products  are  owned 
by  him,  and  are  dealt  with  under  his  own  con- 
trol. So  soon,  however,  as  in  the  course  of 
economical  development,  the  workers  l^egan  to 
produce  no  longer  as  individuals  for  their  own 
use,  or  for  the  direct  use  of  others  in  their  locality, 
but  as  wage-earners,  bound  together  by  no  tie 
other  than  that  of  turning  out  commodities  or 
articles  of  use  in  the  social  conditions  of  the 
time  to  the  order  of  an  employer  who  thrcAV 
the  goods  on  the  market ;  so  soon  as  they  did 
this  a  direct  antagonism  was  established  between 
the  two  parts  of  the  wealth-creating  machine. 

The  workers  were  then  workino;  no  long-er  as 
individuals ;  they  were  working  together  in 
social  union,  and,  as  division  of  labour  came  in, 
Avere  worldng  together  in  co-operative  uuion  for 
a  social  purpose — namely,  to  produce  goods 
which  were  articles  of  no  use  to  them  for  the 
use  of  others  at  a  distance,  the  limits  of  whose 
wants  they  could  not  gauge,  although  these  were 
supplied  by  the  exercise  of  a  social  function,  to 
wit,  exchange.  In  these  circumstances  the  actual 
producers  of  the  goods  have  no  control  over  the 
raw  material,  no  ownership  of  the  finished 
article,  no  say  in  the  matter  of  exchange,  and, 
in  tlie  complete  form  of  the  process  as  we 
see  it  to-day,  no  proprietorship  in  the  tools  or 
machinery.  Tliey  are  simply  wage-earners,  work- 
ing at  wages  regulated  by  the  average  standard 
of  life  or  subsistence  in  their  trade ;  which  wages 
represent  only  a  fraction  of  tlie  value  of  tlic 
commodities  produced  by  thcij-  labour.     But  the 


INTRODUCTION. 


capitalist  or  employer,  he  lias  still  retained  the 
right  of  individual  appropriation  or  ownership, 
and  with  it  the  power  to  exchange,  which  form- 
erly belonged  to  the  individual  workers.  The 
workers  are  working  socially  for  social  objects  : 
the  employer  appropriates  individually,  and 
exchanges  for  individual  objects — the  realisation 
of  his  profits  namely.  Thus  we  have  here  a  dis- 
tinct and  definite  antagonism  lying  at  the  very 
basis  of  our  modern  system  of  wealth-creation, 
an  antasfonism  between  the  social  form  of  the 

o 

actual  production  and  the  individual  form  of 
the  appropriation  and  exchange. 

Now,  the  remarkable  point  about  the  position 
of  thought  in  regard  to  political  economy  to-day 
is  that  the  orthodox  political  economists,  and 
even  some  who  call  themselves  socialists,  fail  to 
discern  this  antagonism  even  when  it  is  pointed 
out  to  them.  Not  a  few  still  maintain,  also,  that 
there  is  no  antagonism  between  the  labourers 
and  the  capitalists;  in  this  respect  proving  them- 
selves less  clear-sighted  than  their  master,  Adam 
Smith,  who,  at  least,  detected  that  employers 
were  in  a  permanent  conspiracy  to  keep  down 
the  rate  of  Avages. 

But  it  is  precisely  this  original  antagonism 
betweeul  social  production  for  social  purposes 
and  individual  appropriation  and  exchange  for 
individual  profit  that  gives  the  key  to  all  the 
industrial,  commercial,  and  financial  difiiculties 
which  arise  in  our  society  at  the  present  time. 

Failing  this  key,  the  most  absurd  explanations 
are  given  of  those  modern  crises  arising  from 


INTRODUCTION. 


superfluity  and  glut,  followed  by  the  discharge 
of  work-people  and  the  general  distress,  which 
occasion  such  grave  anxiety  to  every  thinking 
man. 

Thus  the  problem  of  crises  has  been  confi- 
dently solved  by  a.  reference  to  over-population, 
and  there  are  still  not  a  few  wiseacres  left  who 
persist  in  this  explanation ;  though  it  has  been 
conclusively  proved  time  after  time  that  the 
power  of  man  to  produce  wealth  is  increasing  in 
every  civilised  country  in  a  far  more  rapid  ratio 
than  any  increase  of  population  ever  recorded 
among  the  poorest  nations  in  the  world.  Though, 
moreover,  it  is  seen  at  each  successive  crisis  that 
a  country  which,  like  the  United  States  in  1856 
and  1872,  had  no  over-population,  and  could 
have  no  over-population,  before  the  crisis,  had 
hundreds  of  thousands,  not  to  say  millions  of 
people,  out  of  work  or  employed  at  half-time 
when  the  crisis  came.  Manifestly,  therefore,  the 
over-population  theory  in  nowise  touches  even 
the  fringe  of  the  problem. 

Then  there  are  those  wdio  enlarge  upon  the 
dangers  of  over-production,  and  consider  that 
here  we  have  the  undoubted  cause  of  crises. 
But  this  is  to  restate  the  problem,  not  to  solve 
it,  seeing  that  at  the  time  when  this  "  over- 
production," thanks  to  the  enormous  power  of 
modern  machinery,  has  been  pushed  to  its  last 
pohit,  there  are  tliousands  of  people  who  stand 
in  need  of  the  results  of  the  over-production, 
and  "would  gladly  give  their  labour  and  its  ju^o- 
duct  in  return  for  some  of  these  very  articles, 


INTRODUCTION. 


including  not  unfrequently  food  itself,  wliicli 
have  been  so  overproduced. 

There  are,  again,  the  currency  quacks  who 
attribute  everything  to  the  lack  of  sufficient 
means  of  circulating  commodities;  though  the 
same  phenomena  precisely  have  been  recorded 
when  currency  was  somewhat  restricted,  as,  prior 
to  the  gold-discoveries  in  America  and  Aus- 
tralia, gold  coin  certainly  was  ;  and  when  it  is  if 
anything  too  plentiful,  as  during  the  crisis  of 
1857  it  may  be  taken  to  have  been.  Similarly, 
it  has  been  suggested  that  the  system  of  banking 
is  to  blame,  though  here  again  it  is  impossible  to 
show  how  tinkering  with  credit  based  upon  pro- 
duction can  remedy  the  defects  of  the  faulty 
system  of  production  itself. 

To  such  a  pitch  of  despair  have  economists 
been  driven-  in  their  anxiety  to  avoid  the  true 
solution  propounded  for  them  already  by  a 
greater  thinker  than  themselves,  that  Mr.  Stanley 
Jevons  traced  crises  to  periods  of  bad  harvests, 
and  then,  triumphantly  connecting  bad  harvests 
with  spots  on  the  sun,  referred  the  whole  of  our 
social  troubles  in  this  particular  to  these  strange 
changes  in  that  great  body.  This  theory  was 
actually  accepted  for  a  time,  until  what  was 
perhaps  the  worst  crisis  of  the  century  came  in 
the  same  year  wdth  one  of  the  finest  harvests 
ever  known  on  the  planet,  and  when  also  the 
sun's  disc  was  exceptionally  afflicted  with  spots. 
Then  it  became  apparent  to  the  most  credulous 
that  the  spots  on  the  sun  had  as  much  influence 
on  industrial  crises  as  the  spots  on  the  leopard 


10  INTRODUCTION. 


in  the  Zoological  Gardens ;  and  that  the  genius 
before  whose  shrine  our  Professors  of  Politi- 
cal Economy  at  Oxford  and  Cambridge  still 
prostrate  themselves  had  only  added  another  to 
his  long  list  of  blunders. 

The  ablest  summary  of  the  causes  of  crises  yet 
formulated  outside  of  tlie  school  of  Marx  is  really 
but  a  recapitulation  of  the  symptoms  which  pre- 
cede a  crisis,  not  in  any  sense  an  analysis  of  the 
causes  which  bring  it  about.  A  rush  into  new 
enterprises  and  a  mania  for  speculation ;  an 
eager  anxiety  to  get  rich  without  toil ;  the 
credulity  of  the  public  in  accepting  unsound 
enterprises  ;  the  increase  of  luxury ;  the  rise  of 
prices ;  the  exceptional  demand  for  labour  and 
increase  of  wages,  etc.,  etc. — all  these  are  pre- 
cursors of  an  industrial  crisis,  but  they  cannot  be 
considered  as  more  than  effects  of  what  is  going 
on  below  all  the  time. 

To  return,  therefore,  to  the  view  already  set 
forth.  We  have  historically  on '  record  the 
origin  of  the  antagonism  between  that  social 
form  of  production  and  individual  form  of  ap- 
propriation of  commodities  which  replaced  the 
limited  individual  production  of  the  middle  ages. 
Thus,  the  workers,  though  nominally  free,  lost 
all  control  over  the  ];)roducts  of  their  labour,  and 
could  in  no  wise  direct  or  influence  either  the 
nature  or  the  disposal  of  tlie  commodities.  From 
this  time  forward  all  improvements  in  machinery, 
and  all  the  conquests  of  science  as  applied  to 
the  increase  of  wealth,  have  come  into  the 
hands   of  the  employing  class,  who,  Ijy  degrees, 


INTRODUCTION. 


relieved  themselves  of  all  trade  regulations  and 
State  or  municipal  restrictions,  and  went  forward 
to  capture  and  control  new  markets  for  their 
goods.  With  the  industrial  revolution  at  the  end 
of  the  eighteenth  century  and  the  establishment 
of  the  factory  system,  this  monopoly  of  improve- 
ments in  the  hands  of  the  employing  class  be- 
came more  and  more  dangerous  to  the  welfare 
of  the  connnunity. 

For  now  the  antagonism  to  which  reference 
has  been  made  began  to  show  itself  on  a  wider 
scale  than  was  possible  before.  Each  manu- 
facturer is,  of  course,  solely  anxious  to  make 
hay  while  the  sun  shines.  When,  therefore,, 
markets  are  good,  lie  produces  as  much  of  the 
special  commodities  he  manufactures  as  he 
possibly  can,  he  employs  more  "  hands,"  or 
Avorks  those  he  has  overtime  in  order  to  gain 
greater  and  greater  profits  while  prices  are  high. 
All  do  the  same  thing  at  the  same  time,  no  one 
having  the  slightest  regard  in  the  heat  of  com- 
petition for  the  interests  of  his  neighbour  manu- 
facturer or  for  the  glut  of  the  market  which  may 
ensue.  This  arises  from  the  inherent  nature  of 
the  competitive  system  in  its  first  hey-day  of 
youth  and  prosperity^  Every  employer  and 
capitalist,  in  order  to  live  himself,  must  try  his 
hardest  to  extend  and  not  merely  to  maintain 
his  trade.  Good  employers  and  bad  employers 
there  may  be,  but  no  capitalist,  so  long  as  com- 
petition is  the  rule  in  his  trade,  can  help  proceed- 
ing in  this  way.  The  moment  he  relaxes  his 
efforts,  down  he  goes  in  the  struggle,  his  firm 


INTRODUCTION. 


appears  in  the  bankruptcy  court,  and  the  fury  of 
competition  rages  on  as  before  over  his  business 
remains. 

But  this  cannot  go  on  permanently.  Though 
the  markets  are  larger  than  ever  they  were, 
and  the  cheapening  of  goods  perpetually  going 
on  enables  the  machine  industry  to  conquer  the 
old  forms  of  production  in  other  countries, 
nevertheless,  the  crisis  is  approaching.  There  is 
no  social  control  whatever  exercised  over  the 
individual  rush  for  profit.  As  the  labour  in  the 
factory,  in  the  works,  in  the  mine,  on  the  farm 
is  more  and  more  completely  organised  and 
ordered,  so  do  the  anarchy  and  disorder  more 
and  more  completely  dominate  in  the  exchange. 
While  inside  all  is  conducted  with  the  most 
careful  regard  to  the  profit-making  efficiency  of 
all  the  parts,  outside  each  contends  against  his 
fellow  to  sell  his  goods  most  rapidly  and  in  the 
greatest  quantity. 

Moreover,  the  necessities  of  the  capitalist 
system  force  the  manufacturer,  or  contractor,  or 
mine-owner,  or  shipbuilder,  continuously  to  realise 
his  value  embodied  in  goods,  or  raihvays,  or  coal, 
or  iron,  or  vessels,  in  the  shape  of  cash.  With- 
out doing  this  he  cannot  recommence  his  opera- 
tions by  buying  raw  material,  fuel,  oil,  labour- 
force  and  the  like.  The  commodities  produced 
by  other  manufactures  are  of  no  use  to  him,  any 
more  than  his  commodities  are  of  use  to  them. 
Each  and  all  nmst  realise  their  products  in  coin 
or  its  equivalent.  However  good  a  firm's  credit 
may  be,  to  this  complexion  must  they  all  come 


INTRODUCTIOhL  13 


at  last.  Consequently,  tlie  capitalist  system  of 
production  involves  an  antagonism  between 
money  and  commodities. 

If  the  circulation  of  tlie  capitalist's  commodities 
is  checked,  or  the  realisation  of  his  paper  repre- 
senting work  done  is  impeded,  then  the  work 
cannot  be  carried  on  at  all,  but  must  be  stopped 
altogether.  But  before  this  point  is  reached, 
doubts  arise  as  to  whether  matters  have  not 
been  pushed  too  far.  There  is  a  rush  to  dis- 
count bills  and  to  obtain  advances  on  securities, 
or  to  sell  out  and  out  for  cash  at  reduced  prices. 
But  just  as  everybody  before  was  anxious  to 
produce  more  on  the  rising  prices,  and  buyers 
were  eager  to  buy — not  for  use  but  for  profit — 
so  all  now  are  looking  about  to  see  how  they 
can  contrive  to  produce  less,  and  those  who  were 
buvers  are  eao-er  to  sell,  no  lonsfer  to  obtain 
enhanced  profits,  but  to  avoid  actual  loss.  A 
crisis  has,  in  fact,  set  in,  and  what  should  be  the 
gain  of  society  becomes  its  direct  injury.  That 
increased  power  to  create  wealth  on  which  men 
are  in  the  habit  of  congratulating  themselves, 
becomes  an  actual  hindrance  to  the  creation  of 
more  w^ealth.  Tliat  is  to  say,  the  sole  object  of 
capitalists  in  producing  commodities  is  to  obtain 
profits  for  themselves.  Their  individual  control 
and  anarchical  method  has  resulted  in  a  glut. 
That  glut  renders  it  impossible  for  them  to  con- 
tinue to  produce  on  the  same  scale.  Therefore, 
many  of  them  go  into  bankruptcy,  and  many 
more  close  their  factories  and  works,  or  run 
them  on  short  time.     Hence  labourers  thrown 


14  introduction: 


out  of  work,  goods  unsaleable,  and  at  intervals 
a  commercial  and  financial  crash. 

What  has  happened  ?  The  capitalist  class  has 
virtually  declared  its  own  inability  to  conduct 
the  business  of  the  community.  The  form  of 
the  production  has  revolted  against  the  form  of 
the  exchange. 

As  a  result,  prices  fidl  all  along  tlie  line, 
economies  are  resorted  to,  mostly  at  the  expense 
of  the  workers  :  and  in  due  course,  after  a  period 
more  or  less  prolonged  of  stagnation  and 
depression,  the  heavy  accumulations  of  stocks  are 
disposed  of,  confidence  is  gradually  restored, 
orders  begin  to  come  in  afresh,  and  the  whole 
cycle  is  repeated,  ending  in  a  similar  crisis  on 
probably  a  larger  scale  than  before.  Such  crises 
with  the  liquidations  that  follow  upon  them  now 
frequently  extend  over  many  years.  The  power  of 
production  hampers  its  continuous  employment. 
So  far  as  the  actual  producers  are  concerned,  the 
destruction  of  the  goods  manufactured  would  be 
a  direct  benefit.  They  have  been  employed  in 
producing  their  worst  enemy  and  bringing  about 
their  own  discharge.  Men,  that  is,  in  civilised 
connnunities,  arc  now  controlled  and  overmastered 
by  their  own  machinery  of  production,  instead 
of  controlling  and  mastering  it  themselves  for 
tlie  general  advantage. 

To  formulate  the  diagnosis  of  the  evil  is,  in 
fact,  to  point  out  the  only  possible  remedy. 
This  remedy  society  itself  is  unconsciously  be- 
ginning to  supply.  In  every  direction  the  un- 
regulated capitalist  competitive  system  is  being 


INTRODUCTION.  15 


modified  and  partially  transformed.  How  the 
changes  which  are  now  being  brought  about,  un- 
consciously and  anarchically,  may  in  the  near 
future  be  carried  on  consciously  and  in  an 
orderly  fashion  by  an  educated  and  organised 
democracy,  Avill  l3e  partially  suggested  in  the 
concluding  chapter  of  this  work.  MeauAvhile 
the  reco2;nition  of  the  economic  and  class  anta- 
gonisms  in  which  our  civilised  society  moves  and 
has  its  being  is  slowly  making  w^ay  even  among 
those  whose  position  is  threatened  by  tlie  coming 
chano'C. 


COMMERCIAL  CRISES 


OF  THE 


NINETEENTH    CENTURY 


BY 

H.    M.    H  Y  N  D  M  A  N 

AUTHOR   OF 

'the   bankruptcy  of    INDIA,"    "  THE   HISTORICAL   BASIS   OF    SOCIALISM    IN 

ENGLAND,"    "ENGLAND   FOR   ALL,"   ETC.,    ETC. 


LONDON  :    SWAN    SONNENSCHEIN   &   CO. 
EW   YORK:    CHARLES   SCRIBNER'S   SONS 
1892 


COMMERCIAL  CRISES  OF 


stringency  in  the  j)recious  metals  that  the  Bank  of 
England  had  suspended  specie  payments  since  1797. 
In  ]756  the  funded  debt  of  the  United  Kingdom 
was  little  more  than  £72,000,000,  in  1815  it  was 
£800,000,000.  The  public  expenditure  in  1814  was 
no  less  than  £100,832,260,  in  1815  it  was  £92,000,000, 
and  two  years  later  only  £55,000,000.  Tens  of  thou- 
sands of  men  were  then  set  free  from  the  useless 
services  of  war  to  devote  themselves  to  increasing 
the  wealth  of  the  country ;  the  markets  of  the  Con- 
tinent, long  nominally,  at  least,  closed  to  English 
goods,  were  thrown  open ;  and  a  fine  harvest  at 
home  helped  on,  as  it  was  thought,  the  general  im- 
provement due  to  the  beneficial  change  in  foreign 
affairs. 

Precisely  the  contrary,  however,  of  that  which  was 
expected  took  place.  Great  Britain  had  been  enabled 
to  hold  her  own  during  the  long  war  of  twenty-two 
years,  had  subsidised  half  Europe  against  the  French, 
and  had  supported  a  weight  of  taxation  previously 
unknown,  because  during  these  twenty-two  years  the 
great  machine  industry  and  the  extension  of  com- 
merce poured  into  the  pockets  of  her  trading  and 
land-owning  classes  untold  wealth.  Napoleon's  policy 
of  excluding  English  goods  from  Europe  had  forced 
our  manufacturers  and  merchants  to  seek  outlets  for 
their  cotton,  iron,  wool,  and  other  manufactures  far- 
ther afield.  They  found  their  new  markets,  thanks 
to  the  complete  supremacy  of  England  at  sea,  in 
India,  North  and  South  America,  the  West  India 
Islands,  and  Asia  Minor,  pushing  their  trade  over  the 
whole  known  world  with  the  greatest  vigour.     The 


THE  NINETEENTH  CENTURY.  19 

cheapness  of  English  goods  became  the  marvel  of  the 
universe,  and  the  machine-made  stuff's  of  Lancashire 
and  Yorkshire  gave  an  impulse  to  English  commerce 
scarcely  equalled  even  daring  the  period  of  railway 
construction  and  the  gold  discoveries.  Hargreaves 
and  Jennings,  and  Arkwrigbt  and  Watt,  the  first 
fruits  of  machinery,  and  the  early  application  of 
steam,  piled  up  riches  for  England  ;  and  military  and 
naval  victories  were  made  possible  by  extraordinary 
commercial  success. 

But  now  there  was  peace.  The  great  European 
markets  close  at  hand  were  again  open  to  our  trade, 
and  every  preparation  was  made  to  take  full  ad- 
vantage of  this  great  opportunity.  Scarcely  a  manu- 
facturer in  business  had  failed  to  take  time  by  the 
forelock  and  produce  more  than  his  usual  quantity  of 
goods,  with  a  view  to  disposing  of  them  on  the  Con- 
tinent. The  -truth  was,  however,  that  English  com- 
modities had  never  been  so  completely  shut  out  as 
was  supposed.  Cheapness  had  broken  down  the 
Custom-House  barriers,  and  smuggling,  winked  at  by 
the  officials,  had  developed  the  proportions  of  a 
regular  trade.  In  addition.  Continental  manufac- 
turers, though  lagging  behind  their  English  com- 
petitors in  some  branches  of  business,  had  not  been 
wholly  neglectful  of  the  changes  in  the  form  of  pro- 
duction. They,  too,  were  beginning  to  produce 
with  the  new  machinery,  and  with  the  aid  of 
steam. 

Thus,  in  all  districts  which  English  goods  were 
obliged  to  reach  by  long  land  transport,  the  native 
manufacturers   had   the    advantage.     No   account  of 


COMMERCIAL  CRISES  OF 


these  facts  was  taken  at  the  time,  and  it  was  hastily 
assumed  that  if,  under  all  the  drawbacks  of  smug- 
gling and  possible  confiscation,  twelve  millions  ster- 
ling worth  of  English  goods  could  be  profitably 
delivered  at  foreign  ports,  certainly  not  less  than 
double  that  quantity  might  safely  be  disposed  of  now 
that  peace  had  been  firmly  established.  All  rushed 
in  at  once  to  benefit  by  this  exceptional  opportunity. 
The  result  w^as  that  the  foreign  markets  were  speedily 
glutted.  English  goods  were  to  be  had  cheaper  at 
foreign  ports  than  they  could  be  bought  fol'  at  their 
place  of  manufacture.  For  the  foreign  buj^ers  had 
nothing  to  offer  in  exchange  for  these  manufactures 
except  their  agricultural  products.  But  these  were 
shut  out  from  the  English  markets  by  high  duties. 
Corn,  wine,  and  spirits  could  not  be  taken  by  English 
merchants  owing  to  the  tariffs,  and  as  there  was 
nothing  else  to  ofier,  piles  of  English  commodities  lay 
unsaleable  on  the  Continent,  and  either  brought  their 
owners  nothing  at  all,  or  were  "slaughtered''  at 
ridiculous  prices.  Not  only  were  numberless  specu- 
lators ruined,  but  the  manufacturers  sustained  terrible 
losses. 

The  good  harvest  itself  did  but  seem  to  make 
matters  worse.  Everybody  had  become  accustomed 
to  high  prices  during  the  war.  The  land-owners  and 
farmers  had  done  well  during  the  troubled  period. 
Paper  money  at  a  discount  of  about  twenty-five  jier 
cent.,  as  compared  with  gold,  was  the  general  currency, 
and  infiated  prices  ruled  to  an  abnormal  extent.  All 
calculations  for  sale  of  agricultural  produce  had  been 
based  on  the  continuance  of  a  similar  state  of  things. 


THE  NINETEEN! H  CENTURY. 


But  suddenly  the  chancre  came,  and  with  it  so  plenti- 
ful a  harvest  that  the  barns  and  storehouses  were 
filled  to  repletion  with  grain,  in  the  same  way  that  the 
warehouses  were  choked  with  manufactured  goods. 
There  was  a  conspiracy  of  superfluitj^  to  impoverish 
all  classes.  Nobody  knew  what  to  do.  The  state  of 
thmgs  transcended  all  experience.  Crises  and  stag- 
nation of  trade  had  been  known  before,  but  never  on 
so. large  a  scale.  For  in  this  case,  as  in  those  cases 
which  follow,  the  cause  of  all  the  collapse  of  trade 
and  general  poverty  was  manifestly  a  superabundance 
of  wealth. 

The  working  people,  who  sufiered  most  from  the 
crisis,  were  little  inclined  to  bear  their  misery  silently. 
Discharged  soldiers  and  sailors  came  in  to  compete  on 
an  already  overstocked  labour-market,  and  the  atti- 
tude of  the  unemployed  and  starving  labourers  be- 
came threatening  in  the  extreme.  Observing  that 
machinery  was  everywhere  supplanting  hand-labour, 
they  not  unnaturally  jumped  to  the  conclusion  that 
these  increased  powers  of  producing  wealth  were 
really  injurious  to  the  workers,  seeing  that  they  were, 
in  many  instances,  the  direct  cause  of  their  want  of 
employment.  Bands  of  men  consequently  paraded 
the  country  smashing  machinery,  and  demanding 
work  and  food. 

The  amount  of  machinery  even  then  in  use  in 
Great  Britain  very  far  exceeded  in  power  of  produc- 
tion the  total  quantity  of  manual  labour  employed. 
But  the  war,  that  great  and  most  extravagant  cus- 
tomer to  farmers,  manufacturers,  and  other  producers 
of  wealth,  having  come   to  an  end,  those  who  were 


COMMERCIAL  CRISES  OF 


most  anxious  to  obtain  some  of  their  superabundant 
supplies  of  food  and  manufactures  in  return  for  use- 
ful work  were  prevented  from  doing  so  by  the  fact 
that  they  could  not  be  employed  at  a  profit.  Instead 
of  increasing  the  number  of  their  hands,  and  thus 
aggravating  the  glut,  the  one  object  of  the  producers 
was  to  lessen  their  output,  until  the  accumulated 
stocks  should  be  taken  off  the  market,  and  they 
might,  owing  to  rising  prices,  be  able  again  to  pro- 
duce at  a  profit.  If  the  stock  in  the  farm  buildings 
and  warehouses  had  been  burnt  then,  such  was  the 
irony  of  the  situation,  prosperity  would  have  imme- 
diately recommenced  on  the  same  scale  and  for 
practically  the  same  reasons  as  during  the  war.     - 

At  this  very  time,  indeed,  as  during  all  such  periods, 
the  actual  impoverishment,  except  for  the  working 
classes,  was  far  more  apparent  than  real.  Even  the 
Corn  Laws,  which  were  introduced  in  1815  to  keep 
up  the  price  of  grain,  though  the  enactment  occa- 
sioned a  serious  revolt  in  London,  did  not  permanently 
check  the  growth  of  wealth  ;  and,  notwithstanding 
that  exports  fell  from  £51,000,000  in  1815  to 
£35,000,000  in  1817,  the  imports  of  cotton  grew 
from  53,000,000  pounds  in  1814  to  92,000,000  pounds 
in  1815,  80,000,000  pounds  in  1810,  and  116,000,000 
pounds  and  162,000,000  pounds  in  1817  and  1818 
respectively,  while  the  population  increased  rapidly. 
The  check,  that  is  to  sa}',  on  the  growth  of  national 
wealth  bore  no  proportion  to  the  mischief  inflicted  on 
large  portions  of  the  population. 

This  crisis  of  1815,  though  it  had  an  efiect  upon  the 
Continent  and  the  various  countries  which  traded  to 


THE  NINETEENTH  CENTURY.  23 

a  considerable  extent  with  the  United  Kingdom, 
could  scarcely  be  called  an  international  industrial 
crisis.  In  it,  nevertheless,  could  be  traced  in  the 
germ  the  peculiar  phenomena  of  all  the  succeedinf^ 
crises.  Notably,  we  may  observe  the  glut  of  com- 
modities as  the  pre-eminent  cause  of  lack  of  employ- 
ment and  misery  for  the  working  classes,  already 
instanced  by  Robert  Owen  as  directly  due  to  the  use 
of  machinery  by  the  great  capitalists  exclusively  for 
their  own  profit.  England,  also,  the  victor  in  the 
great  war,  the  country  which  had  gained  enormously 
in  territory  and  influence  during  the  struggle,  under- 
went a  far  more  trying  crisis  than  France,  the  nation 
which  had  been  completely  overcome.  In  Great 
Britain  the  collapse  of  credit  and  the  trade  distress 
was  very  sharp,  if  short  in  its  duration :  in  France 
there  was  practically  no  crisis  at  all.  The  very 
economical  development  which  gave  the  English  such 
resources  to  draw  upon  in  war  became  a  cause  of 
commercial  collapse  on  the  conclusion  of  peace ;  in 
much  the  same  way  that  Germany,  after  the  victories 
of  1870,  underwent  a  more  serious  shock  than  France, 
and  the  £200,000,000  of  indemnity  proved  for  the 
time,  at  any  rate,  rather  a  curse  than  a  blessing  to 
her  people. 


COMMERCIAL  CRISES  OF 


CHAPTER  II. 

THE   CRISIS   OF   1825. 

England,  as  a  whole,  speedily  recovered  from  the 
industrial  depression  following  upon  the  end  of  the 
great  war.  From  the  time  when  the  Bank  of  Eng- 
land resumed  specie  payments  completely  in  1819, 
and  indeed  from  the  end  of  the  year  1817,  the  upward 
movement  of  business  became  more  and  more  rapid. 
A  succession  of  good  harvests  helped  on  the  revival  of 
trade  as  the  stocks  of  manufactured  goods  moved  off; 
and  the  outcry  of  the  agriculturists  against  the  low 
price  for  grain  was  drowned  by  the  din  of  the 
machinery  in  the  cities  working  overtime,  to  great 
profit  for  the  employers  and  constant  employment  for 
the  "  hands."  The  extension  of  trade  seemed  some- 
thing phenomenal  ;  the  rapid  accumulation  of  fortunes 
impelled  the  wealthy  classes  to  undertake  vast  opera- 
tions in  every  direction. 

At  the  beginning  of  1824,  therefore,  instead  of 
L'rumblinef  and  discontent,  murmurs  of  satisfaction 
and  gleeful  anticipations  of  enhanced  gains  were 
heard  from  the  capitalists  on  every  side.  By  this 
time,  too,  even  the  agriculturists,  who  were  producing 
larger  and  larger  crops  to  the  acre,  began  to  share  in 
the  general  prosperity.  The  average  price  of  wheat 
for  the  year  was  G2s   a  (juarter,  yet  no  complaints 


THE  NINETEENTH  CENTURY.  25 

were  made,  for  the  majority  of  the  working  popula- 
tion were  in  full  employment.  In  the  iron  and  coal 
industries,  as  well  as  in  the  cotton  and  wool  factories, 
business  was  exceedingly  brisk.  Everybody  was 
making  haste  to  get  rich.  Speculation  of  the  most 
reckless  character  far  outstripped  the  limits  of  the 
most  adventurous  trading  ;  and,  so  does  history  in  a 
sense  repeat  itself,  our  growing  relations  with  the 
South  American  States  pushed  this  speculation  to  an 
almost  unprecedented  height.  The  mania  affected  the 
whole  mercantile  community,  and  extended  to  all  the 
property-holding  classes. 

That  such  exceptional  prosperity  could  not  be  alto- 
gether sound  seems  scarcely  to  have  been  suspected 
even  by  many  of  those  who  were  capable  of  forming 
a  clear  judgment.  The  improved  conditions  of  life 
for  the  middle-class  were  the  theme  of  universal  com- 
ment. Such  changes  had  been  wrought  in  the  ap- 
pearance of  town  and  country  alike  as  are  usually  the 
result  of  several  generations  of  continuous  improve- 
ment. In  the  country,  fields  better  tilled,  barns  and 
storehouses  better  built,  horses,  cattle,  and  sheep  more 
numerous  and  of  better  breeds.  In  the  towns,  an  im- 
proved class  of  dwellings,  greater  comfort  and  luxury 
in  every  middle-class  household.  Division  of  labour 
pushed  to  a  greater  extent  alike  in  production  and 
distribution.  An  accumulation  of  money  in  the  banks 
as  well  in  London  as  in  the  provincial  centres.  A 
superabundance  of  capital  seeking  employment  in  the 
riskiest  ventures.  Projects  of  every  kind  for  the  con- 
struction of  canals,  tunnels,  bridges,  tramways,  roads, 
and  so  forth,  eagerly  entertained  and  accepted.     All 


26  COMMERCIAL  CRISES  OF 


this  proved  that  the  savings  of  the  middle-class,  in 
spite  of  their  increased  expenditure  on  comfort,  had 
more  than  kept  pace  with  the  growth  of  their 
wealth. 

A  complete  change  in  the  habits  of  this  class  was 
taking  place.  The  unremitting  and  even  excessive 
personal  attention  to  the  details  of  business  was  giv- 
ing way  to  a  more  leisurely  sort  of  existence  for  those 
who  could  now  afford  it.  Instead  of  living  in  their 
houses  of  business,  and  working  steadily  day  and 
night  at  their  occupations,  the  well-to-do  men  of 
aflfairs  and  tradesmen  of  good  standing  began  that 
plan  of  living  in  the  suburbs,  and  going  in  during  the 
day  to  their  offices  and  shops,  which  has  obtained  so 
great  an  extension  in  our  own  tnnes;  while,  at  the -same 
time,  the  lounger  towns  around  our  coasts  began  to 
attain  considerable  dimensions,  owing  to  the  visits  and 
residence  of  Londoners. 

In  small  matters,  as  in  large,  the  change  was  very 
remarkable.  The  pinching  and  saving  of  the  war 
times  had  given  place  to  a  more  easy  and  generous 
view  of  life  all  round  for  the  fairly  well-to-do.  It 
was  a  period  of  universal  well-being  for  that  class, 
accompanied,  as  statistics  but  too  clearly  show,  by 
intense  and  grinding  overwork  for  the  masses  of  the 
people.  Few  thought  of  this  at  the  time.  All  were 
content  to  congratulate  the  country  on  the  singular 
prosperity  and  contentment,  the  wonderful  sagacity 
and  enterprise  of  that  class  of  manufacturers  and  mer- 
chants, capitalists,  bankers,  shipowners,  and  trades- 
men, who  were  regarded  then,  and  for  long  afterwards, 
as  the  backbone  of  the  nation.     All  was  apparently 


THE  NINETEENTH  CENTURY.  27 

based  on  the  soundest  foundations  ;  everyone  was  con- 
vinced that  this  good  fortune  had  been  honestly 
earned,  and  would  be  solidly  maintained.  So  hopeful 
was  the  tone  of  the  period,  so  confident  the  anticipa- 
tion of  a  bright  future,  that  the  most  gloomy  pessi- 
mist could  scarcely  see  a  dark  cloud  in  the  sky.  To- 
morrow shall  be  as  to-day,  and  much  more  abundant, 
was  chanted  in  chorus  by  hundreds  or  thousands  of 
cool,  calculating  men,  who,  in  the  ordinary  business  of 
everyday  life,  were  shrewd  and  cautious  enough. 

The  same  nation  which  had  gone  through  the  great 
war  against  France  with  a  determination  and  stolid 
persistence  that  astonished  the  world,  which  had 
stood  up  stoutly  for  its  freedom  at  home,  and  had 
passed  through  the  crisis  already  briefly  sketched 
with  comparatively  trifling  difficulty,  now  to  all  ap- 
pearance lost  its  head  entirely.  All  the  best  char- 
acteristics of  the  middle-class  seemed  to  be  swamped 
in  one  overmastering  lust  for  gaming.  The  bubbles 
of  the  previous  century  were  reblown  in  more  glitter- 
ing and  fantastic  shapes.  The  follies  of  1824-  and 
1825  surpassed  every  previous  financial  folly.  Classes 
of  the  population  which  had  never  before  followed 
the  will-o'-the-wisps  of  speculation  tumbled  over  one 
another  in  their  eagerness  to  put  salt  on  the  tails  of 
these  flitlings  of  the  financial  marsh.  It  was  high- 
day  and  holiday  for  the  Dousterswivels  and  John 
Laws,  for  unscrupulous  schemers  and  half-insane 
enthusiasts.  Everybody  speculated  in  something : 
not  only  the  world  of  business,  but  the  entire  popu- 
lation were  swept  along  in  the  craze  of  gamblers. 
Old  and  young,  men  and  women,  rich  and  poor,  noble 


28  COMMERCIAL  CRISES  OF 

and  simple,  one  and  all,  were  drawn  into  the  tlirono-. 
Even  when  all  the  purely  absurd  and  swindling  pro- 
jects are  eliminated,  and  only  those  are  taken  account 
of  which  have  a  reasonable  claim  to  solidity,  even  then 
the  scale  of  the  commitments  entered  into  by  Great 
Britain  are  upon  an  astonishing  scale — a  scale  rather 
suitable  to  the  end  than  the  beginning  of  the  nine- 
teenth century,  and  certainly  more  fitly  representing 
the  investments  of  twenty  years  than  of  two. 

The  amount  of  loans  to  foreign  States,  negociated 
in  London  or  transferred  to  the  London  market  dur- 
ing this  period,  in  addition  to  a  quantity  of  external 
loans,  which  were  bought  in  England,  but  not  being 
paid  in  London,  were  not  quoted  on  the  Stock  Ex- 
change, reached  no  less  a  total  than  £86,000,000. 

Over  and  above  these  vast  sums  invested  abroad,  the  following 
comijanies  were  established  among  others  in  1824  and  1825  : 

CAPITAL. 

20  Companies  to  build  Railways,         £13,500,000 

22  Bank  and  Insurance  Comi)anies, _  36,260,000 

11  Gas  Companies,         8,000,000 

17  Foreign  Mining  Companies,            18,200,000 

8  English  and  Irish  Mining  Companies,       ...  10,580,000 

9  Companies  for  the  construction  of  Canals, 

Docks,  Steamers, 10,580,000 

27  Different  Companies  for  various  industrial 

businesses, 12,000,000 

The  total  amounting  to  114  companies,  with  a  gross 
capital  of  upwards  of  one  hundred  millions  sterling. 
TJie  shares  of  most  of  these  companies  stood  at  first 
at  a  high  premium,  and,  in  particular,  the  mining 
companies  of  Mexico  and  South  America  ran  their 
shares  up  to  a  preposterous  height ;  the  Real  del  Monte 


THE  NINETEENTH  CENTURY.  29 

with  shares  of  a  nominal  vahie  of  £400,  of  which 
only  £70  were  paid  up,  were  sold  on  the  2nd  January, 
1825,  at  £1350  a  share — that  being  two  and  a  half 
times  their  quoted  piice  only  a  month  before. 

The  following  passage  might  almost  be  read  as 
referring  not  to  1824  but  to  1889.  "  In  the  spring  of 
182-i,  when  heavy  payments  had  to  be  made  on  ac- 
count of  the  South  American  loans  and  mining  com- 
panies, so  large  an  amount  of  gold  and  silver  bullion 
was  exported  to  South  America  that  a  sensible  de- 
ficiency was  caused  in  the  available  currency  of  Great 
Britain,  and  during  the  whole  of  the  year  1824  and 
the  first  three  months  of  1825,  the  Bank  of  England 
materially  increased  its  note  circulation."  At  the 
same  time  the  provincial  banks,  under  a  mischievous 
Act  of  Parliament  passed  in  1822,  swamped  the  whole 
country  with  paper  money,  which  found  a  ready  out- 
let in  that  time  of  rising  prices  and  universal  specula- 
tion. In  1825  there  were  nearly  thrice  as  many 
such  notes  out  as  there  were  in  1822,  while  between 
June,  1824,  and  October,  1825,  from  £10,000,000  to 
£12,000,000  of  coined  money  was  issued  from  the 
Mint.  Every  step  was  thus  taken  to  encourage 
speculation  to  the  point  of  actual  danger  to  the  State, 
and  to  inflate  the  existing  inflation  beyond  all  pre- 
cedent. 

So  long  as  money  could  be  obtained  at  a  low  rate 
of  interest,  and  interest  was  maintained  at  a  low  rate 
by  the  enormous  issue  of  small  banknotes,  the  specu- 
lation went  on ;  and,  as  has  been  said,  all  classes  and 
both  sexes  took  an  active  part  in  the  scramble  for 
wealth. 


30  COMMERCIAL  CRISES  OF 

Few  took  into  consideration  the  fact  that  the  solid 
loans  and  enterprises  undertaken  called  for  more 
capital  than  the  country  had  saved  or  could  dispose 
of.  The  mania  for  fresh  undertakings  spread  far  and 
wide.  In  the  single  session  of  1825,  438  applications 
were  made  for  bills  for  private  companies,  and  286 
charters  were  granted,,  in  not  a  few  cases  causing 
grave  suspicions  to  be  aroused  as  to  the  uprightness 
of  members  of  the  House  of  Commons. 

Canning  had  called  in  the  New  World  to  redress 
the  balance  of  the  Old,  and  English  loan-mongers, 
merchants  and  promoters,  as  we  have  seen,  put  their 
own  interpretation  on  the  epigram.  All  considera- 
tions of  geography,  climate,  native  character,  and  dis- 
position were  thrown  to  the  winds.  Money  was  to 
be  lent  at  good  interest,  merchandise  was  to  be  shipped 
to  large  profit,  mines  were  to  be  opened  to  pay  an 
unheard-of  percentage  in  countries  concerning  which 
little  or  nothing  was  known  to  the  majority  of  the 
speculators.  The  most  ridiculous  blunders  were  made 
by  the  class  which  was  supposed  to  be  carrying  on 
business  for  the  general  benefit.  Warming-pans  were 
shipped  to  cities  well  within  the  tropics,  and  Shefiield 
carefully  provided  skaters  with  the  means  of  enjoy- 
ing their  favourite  exercise  in  regions  where  ice  had 
never  been  seen.  The  best  glass  and  porcelain  were 
thoughtfully  provided  for  naked  savages,  who  had 
hitherto  found  horns  and  cocoa-nut  shells  quite 
hollow  enough  to  hold  all  the  drink  they  wanted. 

One  company  was  formed  to  provide  the  inhabitants 
of  the  River  Plate  with  fresh  butter,  at  a  time  when 
none  but  the  wildest  of  wild  cattle  could  be  found 


THE  NINE  TEE  NTH  CENTUR  Y.  3 1 

from  the  Atlantic  Ocean  to  the  Andes;  and  a  tribe  of 
luckless  Scotch  dairymaids  were  shipped  to  Buenos 
Ayres,  in  order  to  milk  cattle  a  trifle  more  savao^e 
than  the  Guacho  cowboys  who  herded  them.  When 
the  inconceivable  difficulties  of  getting  milk  and  cream 
in  such  circumstances  had  been  at  length  overcome, 
and  something  in  the  shape  of  butter  was  provided,  it 
was  suddenly  discovered  that  the  misguided  inhabi- 
tants preferred  oil.  Similar  absurd  blunders,  some- 
times with  very  tragic  results  alike  for  the  un- 
fortunate small  investors  as  well  as  for  the  deluded 
emigrants,  were  of  everyday  occurrence.  Such  folly 
and  madness  would  seem  incredible  did  we  not  our- 
selves witness  their  recurrence  in  some  form  on  each 
return  of  a  period  of  prosperous  trade.  The  wealth 
derived  from  the  labours  of  the  workers  and  the  in- 
creased power  of  man  over  nature  was  played  ducks 
and  drakes  with  in  everj''  quarter  of  the  globe,  while 
at  home,  in  England,  this  was  perhaps  the  blackest 
time  for  the  toilers  and  their  children  since  the  dark 
days  of  the  sixteenth  century. 

Just  when  everything  seemed  most  prosperous,  the 
crisis — the  first  important  international  crisis  of  the 
capitalist  epoch — was  close  at  hand.  Nine-tenths  of 
the  foreign  ventures,  it  was  soon  apparent,  would 
produce  no  return  whatever,  at  any  rate,  for  many 
years.  Goods  which  had  been  thrown  upon  the 
market,  as  the  inevitable  result  of  working  the  new 
machinery  at  full  power,  and  goods  which  had  been 
kept  off  the  market  in  the  hope  of  prices  being 
screwed  up  higher  and  higher  yet,  were  suddenly 
found  by  their  owners  to  be  unsaleable  at  the  prices 


32  COMMERCIAL  CRISES  OF 

even  then  ruling.  Further  advances  were  then  sought 
from  the  bankers,  who,  the  bank  rate  of  discount 
being  still  low,  at  first  stretched  their  resources  to 
oblige  their  clients  by  discounting  their  paper  at 
long  dates.  Then  the  calls  upon  the  unpaid  capital 
of  the  new  issues  began  to  come  due,  while  no  profits, 
of  course,  were  as  yet  realised  or  likely  to  be  realised. 
This  led  to  further  demands  for  accommodation.  Men 
of  business  began  to  awaken  from  fancy  to  fact.  The 
Bank  of  England,  which  had  maintained  its  rate  of 
discount  low  during  the  whole  of  the  period  of  wild 
speculation,  only  raised  it  from  4  to  5  per  cent,  on  the 
17th  December,  1825,  when  one  great  bank  failure 
followed  by  others  gave  unmistakable  warning  of 
the  coming  crash. 

And  then  the  crash  came.  The  very  same  people 
who  had  aggravated  the  over-speculation  by  their 
false  and  almost  fraudulent  finance,  now  rendered  the 
collapse  more  disastrous  by  their  panic-stricken  pre- 
cautions against  the  dangers  they  had  themselves 
helped  to  evoke.  In  every  direction  the  note  issue  was 
reduced,  and  credit  was  restricted  to'such  an  extent 
that  even  the  bills  of  perfectly  sound  houses  were 
rejected.  Of  course,  in  such  circumstances  the  glut 
of  unrealisable  commodities  on  the  market  exneeded 
all  limits.  Prices  fell  all  round  with  such  alarming 
rapidity  that  even  the  most  venturous  buyers  held 
aloof.  Not  only  were  speculators  forced  to  relinquish 
their  holdings,  but  the  manufacturers,  whose  continual 
production  necessitated  realisations  in  cash,  were  com- 
pelled, failing  further  bank  accommodation,  to  try  to 
find  the  means  of  meeting  their  own  bills  by  forced 


THE  NINETEENTH  CENTURY.  33 


sales  on  the  open  market,  or  otherwise  to  close  their 
mills  and  go  into  liquidation.  The  Stock  Exchange 
could  afford  no  relief ;  for  shares  which  stood  at 
an  inconceivable  premium  yesterday  were  utterly 
valueless  to-day.  Everybody  wanted  to  realise  at 
once,  and  each  was  anxious  to  get  out  on  the  shoulders 
of  his  neighbour.  Panic  reigned  supreme  alike  in 
linance  and  in  business.  The  first  great  international 
crisis  of  the  nineteenth  century  had  begun. 

In  six  weeks  no  fewer  than  seventy  provincial 
banks  failed.  In  London  and  in  the  country  com- 
mercial houses  fell  one  on  the  top  of  the  other  like  a 
house  of  cards  whose  support  is  removed.  Credit 
was  almost  at  a  standstill.  It  was  impossible  to  say 
what  constituted  wealth  for  the  purpose  of  carrying 
on  business  or  meeting  liabilities.  The  distrust  was' 
as  profound  as  the  confidence  had  but  now  been  over- 
weening. Whoever  had  loans  out  called  them  in  ; 
whoever  had  money  in  hand  refused  to  part  with  it 
on  any  terms.  From  one  end  of  Great  Britain  to  the 
other  people  looked  blankly  in  one  another's  faces, 
not  knowinof  whence  had  arisen  this  sudden  tornado 
of  financial  despair.  Little  else  was  discussed  in  the 
Exchange  or  on  the  market-place.  While  some  said 
that  the  whole  thing  was  purely  imaginary,  the  result 
of  foolish  fears  and  scandalous  rumours,  others  main- 
tained with  equal  vigour  that  the  crisis  was  but  the 
besrinnino:  of  the  end,  and  that  the  downfall  of  our 
whole  industrial  and  financial  system  was  close  at 
hand. 

London  endeavoured  to  check  the  panic  by  a  great 
meeting  of  wealthy  merchants  and  bankers,  who  de- 


34  COMMERCIAL  CRISES  OF 

clared  witli  the  unanimity  of  the  citizens  of  Ephesus 
that  confidence  would  speedily  be  restored  if  people 
would  only  be  confident.  But  the  losers  of  the  pro- 
vinces refused  to  be  comforted  by  the  assurances  of 
metropolitan  magnates  ;  and  their  practical  reply  to 
the  blessed  words  of  the  greatest  organisers  of  industry 
was  a  heavy  run  upon  the  great  London  banks.  The 
anarchy  of  liquidation  was  as  miserable  a  spectacle 
as  the  anarchy  of  speculation.  The  getting  out  was 
as  disorderly  and  as  disgusting  as  the  getting  in. 
Business  got  worse  and  worse,  until  the  very  pro- 
ductive power  of  the  country  was  threatened  with 
serious  limitation  by  the  uncertainty  which  weighed 
upon  the  entire  community.  Unless  credit  were  in 
some  way  restored  and  the  ordinary  channels  of  trade 
accommodation  were  cleared,  the  winter  of  1825  must 
prove  unprecedentedly  disastrous  to  the  working 
population. 

Whatever  was  done  had  to  be  done  quickly.  The 
Bank  of  England,  whose  directors  were,  as  usual  in 
trying  times,  at  their  wits'  end,  applied  now  to  the 
Chancellor  of  the  Exchequer  to  help  them  to  remedy 
a  state  of  things  in  part  brought  about  by  their  own 
incompetence  and  want  of  foresight.  The  directors 
urged  that  unless  they  could  give  facilities  for  dis- 
count, which  in  existing  circumstances  they  did  not 
see  their  way  to  do,  the  crisis  must  continue,  and 
ruin  would  overtake  even  the  most  sound  and  cautious 
establishments.  Then,  apparently  for  the  first  time 
in  all  this  turmoil  of  excitement  and  hopeless  con- 
fusion, the  facts  of  the  situation  were  faced.  It  was 
recognised  that  there  was  no  reason  why,  because  the 


THE  NINETEENTH  CENTURY.  35 

greater  part  of  the  well-to-do  classes  and  their  hangers- 
on  had  hopelessl}^  lost  their  heads,  the  ordinary  busi- 
ness ot"  the  country  should  not  again  be  placed  on  a 
sound  basis.  Excessive  speculation  and  production, 
backed  up  by  intlation  of  the  currency  and  undue 
facilities  for  borrowing,  had  brought  about  the  crisis  : 
excessive  restriction  of  the  currency  and  refusal  of 
reasonable  accommodation  had  aggravated  it.  when  it 
came.  The  nation  had  not  lost  its  means  of  producing 
wealth,  or  of  providing  its  members  with  the  means 
of  subsistence. 

No  sooner  were  the  facts  faced,  so  far  as  they  were 
then  understood,  than  the  height  of  the  crisis  had 
passed.  The  Bank  of  England  was  permitted  to 
issue  one  pound  and  two  pound  notes,  the  Mint  was 
set  to  work  to  coin  bullion  as  rapidly  as  possible,  gold 
was  obtained  from  abroad  in  considerable  quantities, 
and  by  the  end  of  the  year,  which  had  begun  amid 
universal  content  and  general  jubilation,  the  despairing 
people  had  decided  that  they  might  yet  be  able  to 
meet  their  losses  and  pull  through.  Notwithstanding 
the  enormous  scale  of  the  undertakings  and  com- 
mitments in  comparison  with  the  population  and 
realised  wealth  of  the  Great  Britain  of  that  day,  the 
bankruptcies  after  all  were  not  numerous.  The  actual 
loss  was  not  nearly  so  great  as  men  in  their  panic 
had  thought.  Savings  had  been  swept  away  to  a 
large  extent,  and  the  bitter  cry  of  the  small  investor, 
the  subdued  wail  of  the  widow  and  the  orphan,  was 
heard  in  the  land.  But  from  the  economical  point  of 
view,  and  as  regarded  the  interests  of  the  mass  of  the 
people,  the  greatest  mischief  was  caused  by  the  glut 


36  COMMERCIAL  CRISES  OB 


of  commodities,  which  Fourier,  followinsr  the  lead 
of  Robert  Owen,  pointed  to  as  the  peculiar  feature  of 
this  trade  crisis  in  every  country  affected  by  it.  That 
glut  of  commodities  was  increased  by  the  anxiety  of 
the  middle-class  and  the  wealthy  to  make  up  by 
economy  for  the  losses  which  they  had  sustained ;  and 
men  and  women  were  again  thrown  out  of  work  as 
before  by  the  fact  that  their  power  to  produce  wealth 
was  being  continually  enhanced,  while  they  themselves 
had  as  little  control  over  the  ownership  or  the  dis- 
tribution of  the  wealth  which  they  produced  as  they 
had  over  the  raw  material,  machinery,  and  tools  by 
which  through  them  it  was  created. 

Again,  therefore,  as  a  result  of  causes  over  which 
they  had  no  control,  Great  Britain  was  overrun  by 
workless  people,  and  disturbances  and  riots  were  the 
rule  rather  than  the  exception ;  for  Englishmen  had 
not  yet  accepted  the  doctrine  that  it  was  their  dutj^ 
to  starve  in  silence  and  contentment  because  the 
managers  of  modern  industry  had  made  fools  of 
themselves.  They  saw  that,  no  matter,how  success- 
ful the  speculations  of  the  well-to-do  might  have  been, 
the  wage-earners  would  have  in  nowise  benefited 
from  the  profits  realised  ;  and  it  seemed  to  them — 
this  was  sixty-seven  years  ago,  and  before  the  school- 
master was  fairly  abroad — that  they  should  scarcely 
be  called  upon  to  pay  in  the  shape  of  starvation  and 
misery  for  themselves,  their  wives,  and  their  children, 
because  the  ruling  classes  had  staked  and  lost  the 
national  wealth  at  the  international  gambling  table 
of  finance  and  commerce.  They  even  went  so  far  as 
to  translate  their  opinions  on  this  subject  into  action, 


THE  NINETEENTH  CENTURY. 


were  diil}^  shot  down,  hanged,  and  imprisoned  for 
their  ic^noraut  misconception  of  the  truths  of  middle- 
class  political  economy,  and  were  taught  a  rude  lesson 
as  to  the  advantages  of  law  and  order  even  to  a  starv- 
ing people  under  modern  social  conditions. 

In  the  meantime,  the  Government  was  carefully- 
considering  what  seemed  to  tliem  the  far  more  im- 
portant question  of  the  regulation  of  the  Bank  of 
England.  One  pound  and  two  pound  notes  were 
now  finally  given  up  in  England,  though  their  circu- 
lation was  still  permitted  in  Scotland,  and  the  Bank 
of  England  was  authorised  to  establish  branches  in 
several  of  the  great  provincial  cities.  It  was  hoped 
that  these  measures  would  materially  lessen  the  pro- 
bability of  the  recurrence  of  crisis,  and  would  limit  its 
injurious  efiect  if  it  took  place.  How  far  this  antici- 
pation was  realised  will  shoi'tly  be  seen. 

The  crisis  of  1825  had  a  considerable  effect  on  all 
the  foreign  markets  which,  in  some  cases,  felt  the 
results  of  it  after  Great  Britain  herself  had  recovered 
from  the  shock.  English  goods,  unsaleable  at  home, 
were  thrown  in  masses  on  the  foreign  markets,  de- 
pressing prices  to  a  great  extent,  as  the  previous  rise 
in  England  had  maintained  values.  The  financial 
crash  which  followed,  however,  though  it  was  felt 
throughout  the  civilised  world,  did  not  have  the  same 
influence  as  similar  disturbances  produced  later.  In- 
ternational financial  and  commercial  relations  had  not 
yet  become  so  closely  intertwined  as  they  afterwards 
became,  and  even  the  United  States,  temporarily 
affected  as  they  were  by  the  outrageous  speculation 
carried  on  in  raw  cotton  during  1825,  experienced 


38  COMMERCIAL  CRISES  OF 

nothing  which  could  be  called  a  serious  crisis,  inti- 
mately connected  as  the  interests  of  the  two  countries 
now  were. 

Those  who  witnessed  the  crisis  of  1825  and  the 
series  of  events  which  led  up  to  it,  ought  to  have  been 
able  to  prepare  for  and  provide  against  similar  social 
catastrophes.  The  early  portion  of  the  present  cen- 
tury produced  many  Englishmen,  who  saw  as  clearly 
as  did  Owen  that  the  increased  power  to  create  wealth 
had  become  in  the  hands  of  the  dominant  class  a 
direct  means  for  the  manufacture  of  poverty.  But, 
unfortunately,  their  warnings  passed  unheeded,  the 
doctrine  of  non-interference  was  at  this  time  raised 
to  the  level  of  an  indisputable  religious  dogma,  and, 
consequently,  the  economical  evolution  was  left  to 
work  itself  out  at  the  expense  of  much  loss  to  the 
countr}^,  and  of  endless  suffering  to  the  victims  of  the 
system.  The  truth,  of  course,  being  that,  though  the 
evils  might  have  been  palliated,  the  form  of  the  de- 
velopment was  inevitable. 


THE  NINETEENTH  CENTURY.  35 


CHAPTER  III. 

THE  CRISIS  OF  1836  1839. 

Great  Britain  had  thus  entered  upon  that  series  of 
trade  depressions  and  trade  inflations,  of  confident 
adventure  and  utter  hopelessness,  of  "  boom "  and 
crisis,  which  have  continued  to  our  own  day.  It  was 
during  these  first  thirty  years  of  the  century  that 
England  fully  confirmed  and  extended  the  position 
which  she  had  gained  during  the  great  war.  The 
first-fruits  of  all  the  great  inventions  fell  to  her  lot, 
and  the  fact  that  these  great  inventions  were  brought 
to  bear  i)ractically  at  almost  the  same  time,  in  many 
different  branches  of  industry,  had  a  cumulative  effect. 
A  complete  transformation  was  being  carried  out. 
An  agricultural  country,  with  a  proportionate  amount 
of  native  manufactures  and  a  considerable  commerce, 
was  being  turned  into  the  workshop  of  the  world,  and 
the  sea-carrying  trade,  owing  to  geographical  position 
as  well  as  naval  victories,  fell  more  and  more  into 
English  hands. 

At  this  period,  also,  for  the  first  time  since  the 
downfall  of  the  monasteries  and  the  neglect  to  main- 
tain the  public  roads  which  ensued  thereupon,  the 
internal  communications  of  the  island  began  to  receive 
the  attention  which  they  deserved.  This  was  a  matter 
of  pressing  necessity.     It  was  impossible  to  transport 


40  COMMERCIAL  CRISES  OF 

large  quantities  of  manufactured  goods  to  the  seaports 
at  a  profit  over  such  roads  as  those  which  led  from 
one  town  in  Lancashire  and  Yorkshire  to  another  at 
the  commencement  of  the  development  of  the  great 
machine  industries.  The  cotton,  wool,  silk,  and  linen 
manufactures,  carried  on  as  they  now  were  by  steam- 
power,  required  great  quantities  of  coal  delivered  at 
the  mills  at  a  cheap  price ;  and  the  iron  industry, 
which  had  received  a  tremendous  impetus  from  many 
quarters,  required  still  more  coal  and  ores  delivered  at 
low  rates  in  order  to  maintain  that  cheapness  which 
could  alone  secure  the  continuance  of  England's  in- 
dustrial supremacy.  Canals,  perhaps  the  cheapest  and 
best  means  of  convejdng  heavy  goods  even  yet  dis- 
covered, were  the  first  important  improvement  made 
in  this  direction,  and  some  of  the  greatest  of  these 
works  were  completed  at  the  end  of  the  eighteenth 
century,  largely  contributing  to  the  development  of 
the  great  cities  which  they  connected  with  one  an- 
other. 

Turnpike  roads  constructed  on  sound  principles 
soon  followed,  and  the  work  done  by  the  Romans 
hundreds  of  years  before  in  this  island  was  done  over 
again,  thougli  far  less  solidly,  to  meet  the  exigencies 
of  the  new  era.  Tramways,  also,  which  sometimes 
appear  to  us  to  be  one  of  the  methods  of  conveyance 
adopted  by  the  present  generation,  were  in  common 
use  in  all  the  mining  and  industrial  districts  during 
the  first  quarter  of  the  present  century.  Transport 
was,  in  fact,  making  strenuous  efforts  to  keep  pace 
with  the  exigencies  of  manufacture,  and  the  appear- 
ance of  steam  vessels  on  the  ocean  was  evidence  to  the 


THE  NIXETEENTH  CENTURY.  4l 

more  clear-sighted  that  no  loncj  time  could  elapse 
before  the  same  great  power  would  be  applied  to 
locomotion  on  land.  The  crisis  of  1825  in  nowise 
arrested  this  necessary  development.  If  the  numbers 
of  the  unemployed  and  the  miserable  condition  of  the 
mass  of  the  people  constituted,  as  at  this  period  they 
unquestionably  did,  a  serious  political  and  social 
danger  for  the  dominant  classes,  the  cheap'  labour 
provided  by  the  ill-paid  toil  of  themselves,  their  wives, 
and  their  children,  offered  a  premium  on  capitalist 
experiment  in  every  direction.  All  the  disturbances 
and  riots,  all  the  political  discontent  and  social  con- 
spiracy, had  little  effect  upon  the  steady,  economical 
progress  which  went  on  below.  The  people  starved ; 
but  production  was  enhanced  and  transport  was  im- 
proved in  a  manner  altogether  unprecedented.  In 
1830  the  first  railway  was  established  in  England 
between  Liverpool  and  Manchester. 

In  this  year,  1830,  also,  owing  to  good  harvests  and 
the  recovery  in  business  from  the  dulness  which 
succeeded  the  collapse  of  1825,  a  thorough  revival  set 
in  so  far  as  the  interests  of  the  profit-making  classes 
were  concerned.  The  rate  of  discount  fell  away  and 
another  period  of  speculation  began  with  its  inevitable 
accompaniments  of  inflation  and  over-trading.  In  the 
ten  years,  from  1821  to  1831,  the  population  of  England 
and  Wales  alone  increased  from  12,000,000  to  14,000,000, 
though  the  condition  of  the  working-people  presented 
a  sad  contrast  to  the  well-being  of  their  forerunners 
in  the  first  half  of  the  previous  century ;  and  the 
enactment  of  the  New  Poor  Law  of  1834  rendered 
their  prospects  more  hopeless  than  ever.     In  1835  the 


42  COMMERCIAL  CRISES  OF 

Chartist  movement  took  shape  in  an  organised  body, 
and  from  that  date  onwards  for  several  years 
turmoil,  rioting,  and  semi-insurrection  pervaded  the 
country. 

But  all  this,  though  it  might  slightly  impede,  could 
not  greatly  check  the  expansion  which  had  commenced 
a  few  3'ears  before.  The  year  1836  provided  the 
second  of  two  exceptionally  abundant  harvests  in 
succession,  and,  similar  causes  producing  the  like 
effects,  183G  witnessed  a  recurrence  of  that  mania  of 
speculation  and  therewith  an  astounding  expansion  of 
confidence  and  credit  which  had  ended  in  the  crash 
of  1825,  It  is  unnecessary  to  enlarge  upon  the  folly 
of  speculators  and  investors  at  such  periods,  unless 
new  features  of  mania  present  themselves  for  analysis 
and  consideration.  The  memory  of  investors  and 
men  of  business  is  alwaj's  short,  and  modern  conditions 
of  finance  and  commerce  tend  to  limit  their  foresii{ht. 
Thus  each  successive  generation  of  ten  years  produces 
its  fresh  crop  of  needy  adventurers  and  credulous 
premium-hunters.  Tiiere  is  really  no  necessity'  to  in- 
vent new  methods  :  the  financial  three-card  trick  and 
the  commercial  confidence  dodge  never  fail  to  attract 
a  new  set  of  victims,  and  those  who  perpetrate  them 
successfully,  instead  of  undergoing  imprisonment, 
attain  to  the  highest  positions  in  the  city,  society,  and 
politics. 

Untaught  by  the  lessons  of  the  previous  crash,  the 
banks  again  did  all  in  their  power  to  push  to  the 
extreme  the  eager  desire  to  embark  on  new  ventures 
and  to  carry  commercial  initiative  far  beyond  the  farth- 
est bounds  of  prudence.  By  the  Bank  Act  of  182G,bank- 


THE  NINETEENTH  CENTURY.  43 

ing  companies  could  be  formed  with  the  power  to  issue 
notes,  under  certain  conditions,  of  a  denomination  not 
less  than  £5.     In  the  first  seven  years  after  the  pro- 
mulgation of  this  Act,  thirty-four  such  banks  of  issue 
were  set  on  foot,  and  in  the  three  following  years, to  the 
end  of  1835, about  the  same  number.  "  In  the  year  1836, 
speculation  had  again  reached  such  a  pitch  that  forty- 
two  new  banks  of  issue  were  established  which,  with 
their  branches,  gave  a  total  of  fully  two  hundred,  and 
taking  into  consideration  other  credit  establishments 
and  their   branch  banks,  there  were  no  fewer  than 
670  such  institutions  on  foot  wnth  about  thirty-seven 
thousand    shareholders  ;   and   of   these  three-fourths 
issued  their  own   notes."     During  these  years,  both 
the  Bank  of  England  and  the  other  banks  had  issued 
paper  largely  in  excess  of  the  amounts  previously  in 
circulation.     But   now   in   the   spring   of    1836,   the 
Bank  of  England,  as  in  1825,  began  to  reduce  its  note 
issue,  and  was  forced  in  vie.w  of  the  drain  for  gold 
which  had  set  in  to  America  to  raise  its  rate  of  dis- 
count.     Thereupon,  the    banks    of   issue,  instead  of 
following  the  Bank  of  England's  lead,  issued  fifty  per 
cent,   more   notes   than    before,  thus    rendering   the 
directors'  action  to    protect   their  gold  reserve   from 
depletion    almost    nu^tory.      Hence    arose    an   ex- 
pansion of  credit  which  speedily  gave  rise  to  a  glut. 
A  great  bank  in  Ireland  suddenly  failed,  and  a  run 
commenced  on  the  provincial  banks  of  the  South  of 
England  which  threatened  to  end  as  disastrously  as 
the  similar  run  in    1825,  seeing   that   the  banks   of 
issue  held  at  this  time  but  a  sixth  part  of  their  note 
circulation  in  specie.     This  time,  however,  the  Bank 


44  COMMERCIAL  CRISES  OF 

of  England  came  to  the  rescue  of  one  of  the  great 
northern  banks,  and  a  crash  was  staved  off. 

Now,  however,  became  apparent  the  close  connec- 
tion of  the  English  commercial  and  financial  markets 
with  those  of  the  United  States  which,  then  and  ever 
since,  has  rendered  it  inevitable  that  an  industrial  or 
financial  crisis  in  the  one  country  should  more  or  less 
seriously  afiect  the  other.  At  this  time,  183G-89,  the 
United  States  were  still,  economically  speaking,  a  de- 
pendency of  Great  Britain,  though  more  than  sixty 
years  had  passed  since  the  Declaration  of  Indepen- 
dence. North  America,  in  fact,  stood  to  England  in 
much  the  same  relation  that  the  Australian  Colonies 
do  now.  The  Great  Republic  supplied  the  Lan- 
cashire mills  almost  exclusively  with  cotton,  as 
Australia  now  supplies  Bradford,  Huddersfield,  and 
other  cities  with  wool.  In  like  manner,  also,  the 
United  States,  both  as  a  Federal  Government  and  as 
independent  States,  looked  to  this  country  for  loans 
to  develop  their  immeasurable  resources. 

Tlie  dependence  of  tlie  English  cotton  industry 
upon  the  United  States  for  its  supply  of  raw  material 
had  already  in  1824  and  1825  given  rise  to  a  vast 
deal  of  speculation  which  rose  to  such  a  point  as  to 
assume  the  dimensions  of  a  great  modern  "  corner  " 
in  that  staple.  Then,  however,  as  at  a  much  later 
date,  during  the  Civil  War,  it  was  discovered  that 
when  the  price  exceeded  a  certain  figure,  other 
countries  were  glad  of  the  opportunity  to  supplement 
the  deficiency  and  to  benefit  by  English  custom. 
During  the  interval  between  1825  and  1836,  the 
United   States  liad   entered   upon  a   career   of  false 


THE  NINETEEXTH  CENTURY.  45 


banking  based  to  a  large  extent  upon  fictitious  land 
sales  and  backed  up  by  loans  incurred  in  Great 
Britain.  From  1832  onwards,  a  period  of  wild  specu- 
lation had  commenced,  which  the  banks  as  usual  had 
helped  to  extend  and  intensify  by  an  excessive  issue 
of  paper  money,  amounting  in  the  year  1837  to 
£90,000,000  for  a  population  of  about  18,000,000  ;  an 
inflation  which  individual  capitalists  carried  yet 
further  by  raising  loans  on  their  private  property  and 
businesses  in  England. 

In  spite  of  the  warnings  of  President  Jackson,  this 
dangerous  system  was  pushed  to  the  extreme.  In 
vain  was  the  extravagance,  corruption,  and  swindling 
denounced  by  those  who  saw  whither  all  this  must 
lead.  Paper  money  in  excess  seemed  an  easy  way  for 
all  to  make  fortunes  at  once,  and  none  would  listen 
to  reason  so  long  as  the  universal  jn-osperity  seemed 
unshaken.  In-short,  the  old  story  of  all  such  periods 
was  retold  on  the  other  side  of  the  Atlantic.  The 
price  of  land  and  commodities,  the  rents  of  houses  and 
the  wages  of  labour,  all  rose  together,  and  endless  new 
enterprises  were  undertaken,  numberless  new  houses 
were  built.  Any  difficulty  in  high  places  was  met  by 
still  further  loans  at  high  rates  of  interest  in  London 
and  Amsterdam.  There  seemed  literally  no  limit  to 
the  length  to  which  things  might  be  pushed,  as  there 
was  assuredly  no  restriction  put  upon  the  action  of 
the  banks.  No  one  seems  to  have  imagined  that  the 
upset  of  all  this  extravagance  and  folly  could  come 
from  England,  which  had  been  helping  by  her  loans 
to  breed  this  exaggerated  confidence. 

No  telegraph  then  existed  to  keep  the  more  wary 


46  COMMERCIAL  CRISES  OF 


on  the  alert  as  to  the  coming  change.  But  the  rise  in 
the  rate  of  discount  which  followed  opened  their  eyes, 
and  the  crash  which  ensued  was  on  a  scale  of  truly 
New  World  magnitude.  When  credit  first  gave  way 
the  whole  of  the  American  banks  suspended  specie 
payments,  and  eventually  in  1837,  618  banks,  and  in 
1839,  no  fewer  than  959  banks,  failed.  Notes  became 
worthless,  loans  remained  unpaid,  advances  were  not 
to  be  had,  bankruptcies  seemed  to  become  the  rule  in 
trade  rather  than  the  exception.  The  records  of  the 
period  show  that  the  Americans  themselves  felt  for  a 
time  almost  hopeless  of  any  speedy  recovery.  The 
advocates  of  "  soft  money  "  had  had  for  the  moment 
their  fill  of  it. 

The  influence  of  such  a  crisis  as  this  in  America 
reacted  most  injuriously  upon  Great  Bi-itain.  Those 
who  had  made  advances  on  American  produce  at  high 
prices — and  they  had  been  made  on  a  stupendous 
scale — saw  no  way  of  recovering  their  money.  Those 
who  had  lent  on  lands  or  other  estates,  or  had  invested 
in  the  shares  of  American  banks,  saw  their  fortunes 
swept  away  at  a  stroke.  American  credit  in  England 
received  a  blow  from  which  it  took  a  long  time  to  re- 
vive, and  English  literature  was  enriched  by  some 
scathing  diatribes  against  American  rascality  and 
breach  of  faith.  Not  until  1839  was  the  full  extent 
oF  the  disaster  appreciated,  when  a  scries  of  failures 
occurred  far  in  excess  of  the  average  ;  the  c:old  reserve 
in  the  Bank  of  England  fell  to  little  over  two  millions 
and  a  half ;  and  unless  exceptional  measures  had  been 
resorted  to,  another  financial  crisis  of  a  still  worse 
character  than  that  of  1837  would  have  followed  the 


THE  NINETEENTH  CENTURY.  47 


raising  of  the  bank  rate  of  discount  to  6  per  cent. 
No  wonder  that  this  year,  1839,  looked  black  for  the 
working-classes,  and  that  revolutionary  propaganda 
made  rapid  progress  among  the  ill-paid  or  workless 
people.  So  bad  was  the  lot  of  the  workers  that  the 
"  Condition  of  England "  question  was  the  topic 
most  seriously  discussed  in  the  Cabinet  as  in  the 
street. 

Yet  throughout  all  this  anarchy  and  apparent  im- 
poverishment, the  well-to-do  classes,  it  cannot  be  too 
often  repeated,  were  becoming  steadily  richer,  and  the 
wealth  of  the  country,  as  well  as  its  power  to  pro- 
duce more  wealtli,  constantly  and  continuously  grew. 
Exports  and  imports  mounted  upwards,  the  fluctua- 
tions bearing  but  a  small  proportion  to  the  bulk  of 
the  whole.  Public  buildings,  private  mansions,  great 
factories,  vast  warehouses,  public  works  calling  for 
huge  capital  expenditure,  were  all  being  erected  at 
the  very  time  when  the  state  of  large  portions  of  the 
population  occasioned  grave  anxiety  to  the  statesman, 
the  economist,  and  the  philanthropist  alike.  Within 
a  period  of  thirty  years  the  annual  rental  of  real 
property  in  England  and  Wales  alone  increased  by 
£40,000,000  :  the  tonnage  of  vessels  sailing  under  the 
English  flag  was  six-foLl  greater  than  it  had  been  at 
the  beginning  of  the  century. 

In  agriculture  the  advance  was  not  so  rapid  as  in 
manufacture  or  in  transport ;  but  even  there  the  in- 
creased j)Ower  of  production  was  very  marked.  The 
country  was  still  almost  entirely  dependent  on  its 
own  resources  for  the  supply  of  wheat,  and  that 
supply  had  increased  by  44,000,000  of  bushels  a  year 


48  COMMERCIAL  CRISES  OF 

in  the  course  of  forty  years,  though  the  agricultural 
population  had  increased  to  a  very  small  extent. 

But  with  these  unmistakable  facts  before  them, 
and  made  day  by  day  the  subject  of  vigorous  com- 
ments by  able  writers  and  speakers  on  the  question 
from  the  point  of  view  of  the  producers,  the  Govern- 
ment and  the  House  of  Commons  confined  themselves 
to^  tinkering  with  the  banking  system.  Now  it  is 
quite  unnecessary  to  say  that  when  banks  are  care- 
fully managed  on  a  sound  basis  the  danger  of  a 
financial  and  industrial  crisis  assuming  unmanage- 
able proportions,  owing  to  undue  and  absurd  inflation 
of  tlic  currency  and  consequent  unreasoning  specula- 
tion, is  much  lessened.  But  banking,  after  all,  is  only 
a  convenient  method  of  conducting  one  portion  of  tlie 
machinery  of  production  and  exchange  under  the 
capitalist  system.  So  long  as  one  class  carries  on  the 
business  of  the  country,  solely  for  profit,  and  is  pre- 
vented by  the  very  law  of  its  being  from  ordering 
matters  in  such  wise  that  a  proper  harmony  is  estab- 
lished between  expenditure  on  permanent  works  and 
on  day-to-day  business,  it  is  quite  imjiossible  tliat  the 
soundest  methods  of  banking  that  can  be  established 
should  do  more  than  work  the  credit  sj'stem  with  the 
least  obstruction  that  circumstances  will  admit  of. 
The  experience  of  the  English  banks,  and  more  par- 
ticularly of  the  Bank  of  England  during  the  crises  up 
to  the  year  1839,  had  shown  that  the  mischiefs,  un- 
fortunately the  unrecognised  mischiefs,  of  a  method 
of  creating  wealth  which  refused  to  permit  any  control 
to  those  who  actually-  created  it,  might  be  and  had  been 
much  aggravated  by  mistakes  in  banking. 


THE  NINETEENTH  CENTURY.  49 

Let  the  Bank  of  England,  it  was  said,  be  placed  on 
such  a  footing  that  excessive  issues  of  paper  currency 
would  be  checked ;  let  due  warning  be  given  of  the 
approach  of  stringency  by  the  reduction  of  the  neces- 
sary reserve  and  all  would  be  well.  English  trade 
was  at  this  time  becoming:  more  and  more  a  trade 
of  borrowed  capital.  That  is  to  say,  men  were  look- 
ing to  the  banks  to  provide  the  bulk  of  the  capital  with 
which  they  traded  at  a  rate  of  interest  guided  by  the 
market  rate,  of  which  one  and  generally  the  crucial 
criterion  was  the  bank  rate,  their  own  capital  providing 
only  a  margin  for  possible  loss.  Joint  Stock  Banks 
were  then  in  their  infancy,  and  the  importance  of  the 
Bank  of  England  relating  to  the  banking  world  of 
England  and  to  the  money  market  at  large  was  much 
greater  in  every  way  than  it  is  to-day.  It  was 
natural,  therefore,  for  those  who  did  not  look  below 
the  surface  to- imagine  that  if  the  Bank  of  England 
was  ordered  aright,  the  probability  of  the  recurrence 
of  disastrous  crises  would  be  materially  reduced  if  not 
removed  altogether. 

Without  going  at  length  into  the  history  of  the 
Bank  of  England,  or  discussing  fully  over  again  the 
much-debated  Bank  Charter  Act  of  1814,  it  is  inter- 
esting to  observe  the  steps  which  were  taken  by  the 
Government  to  remedy  the  evils  of  excessive  note 
issue  and  over-confidence.  The  Bank  of  England 
holds  quite  an  exceptional  position  as  a  bank.  It  is 
not  a  State  bank  like  the  Bank  of  France,  nor  is  it 
altogether  a  private  or  Joint  Stock  Bank,  seeing  that 
it  has  a  practical  monopoly  of  Government  business, 
and,  which   is  more   important,  is   regarded  by  the 


so  COMMERCIAL  CRISES  OF 


majority  even  of  business  people,  who  ought  to  know- 
better,  as  in  some  sort  a  State  institution.  In  theory, 
and  to  a  large  extent  in  practice,  the  Bank  of  England 
is  a  bank  like  other  banks,  accepting  deposits  either 
with  or  without  interest,  and  lending  out  those  de- 
posits again  to  other  customers  who  need  them  in  the 
shape  of  advances  on  bills  or  easily  saleable  securities 
at  a  margin.  But  this  sort  of  business  calls  for  a 
reserve  to  be  used  in  case  of  panic ;  otherwise  in  a 
moment  of  stringency  when  everybody  wants  money 
there  would  not  becash  enough  to  meetcurrentdemands. 
Now,  the  Bank  of  England  holds  not  only 
its  own  reserve  to  meet  national  demands  for 
specie  payments,  but  also  the  bullion  to  meet 
foreign  payments.  Moreover,  tlie  other  banks, 
instead  of  keeping  their  own  reserves,  keep  them  in 
the  Bank  of  England ;  and  to  the  Bank  of  England 
alone  can  bankers  and  men  of  business  resort  in 
periods  of  great  financial  disturbance  to  obtain  ad- 
vances on  Consols  or  other  first-rate  securities,  which, 
though  in  ordinary  times  easily  convertible  into  cash 
by  means  of  sales  or  loans  upon  them,  cannot  be  dealt 
with  in  the  same  way  when  all  at  the  same  moment 
are  panic-stricken  in  their  anxiety  to  obtain  legal 
tender,  and  thus  provide  the  means  to  pay  their  day- 
to-day  liabilities.  Of  the  attempts  of  the  Bank  to 
keep  a  reserve,  and  to  manage  a  foreign  drain  after 
the  resumption  of  specie  payments  in  1819,  "a  more 
miserable  history  can  liardly  be  found."  So  says  a 
gieat  authority,  and  the  brief  survey  of  the  facts 
given  in  the  foregoing  pages  certainly  bears  out  this 
stion^r  condemnation. 


THE  NINETEENTH  CENTURY.  Si 


Instead  of  showing  that  sagacity,  promptitude,  and 
foresight  which  the  public  believe  the  heads  of  the 
City  must  be  possessed  of,  the  Directors  of  the  Bank 
of  England  were  just  as  silly  as  anybody  else.  It  was 
to  provide  securities  against  the  incapacity  of  the 
ablest  financiers  of  the  country  that  Peel's  Bank  Act 
was  passed  into  law.  Bj  this  Act  the  Bank  of  Eng- 
land was  divided  into  two  parts — the  department  for 
the  issue  of  notes  and  the  banking  department — which 
are  really  quite  separate,  though  they  remained,  and 
still  remain,  under  one  roof.  In  the  issue  department. 
Bank  of  England  notes,  which  are  legal  tender,  can 
only  be  issued  to  the  extent  of  £15,000,000  on  Govern- 
ment securities,  £11,015,100  of  this  being  a  Govern- 
ment debt.  Any  further  issue  of  notes  must  be  repre- 
sented by  gold  coin  and  bullion  in  the  hands  of  the 
Bank  to  the  full  amount,  no  issue  against  silver  being 
permitted.  That  is  the  full  extent  to  which  the  Bank 
is  by  law  permitted  to  go. 

Now,  wonderfully  as  the  amount  of  gold  necessary 
to  do  a  sfiven  amount  of  business  has  been  reduced 
by  the  modern  development  of  cheques  and  the  clearing- 
house, gold  or  absolutely  sound  notes  must  be  obtained 
in  sufficient  quantity  in  times  of  difficulty  to  stem 
the  current  of  panic,  and  enable  trade  to  go  on  again 
as  speedily  as  may  be.  Bad  as  the  management  of 
the  Bank  of  England  was  from  certain  points  of  view 
in  1825  and  in  1837,  it  can  scarcely  be  questioned 
that  the  issue  of  notes  which  were  absolute  legal 
tender,  but  were  not  fully  represented  by  bullion,  did 
circumscribe  the  range  of  the  mischief  occasioned  by 
those  disastrous  crises.     But  under  the  Act  of   1844 


$2  COMMERCIAL  CRISES  OF 

such  action  by  the  Directors  was  no  longer  possible. 
The  two  departments  were  severed,  and  the  one  might 
be  denuded  of  coin  and  bullion  while  the  other  had  a 
superfluity,  which  it  could  not  by  law  supply  in  the 
only  way  then  possible  to  restrict  the  panic,  namely, 
by  issuing  more  notes.  Thus  a  sudden  drain  produced 
a  twofold  effect. 

In  this  case,  as  in  many  others  of  a  like  kind,  the 
theorists  saw  farther  than  the  practical  men.  While 
the  bankers  and  City  people  approved  of  the  Bank 
Act,  with  its  division  of  departments,  and  rigid  restric- 
tion of  the  note  issue  on  securities  to  £15,000,000, 
such  writers  as  Mill,  Tooke,  and  others  predicted  that 
on  the  first  serious  crisis  the  Act,  owdng  to  the  inelas- 
ticity which  it  caused,  would  be  found  to  be  unwork- 
able, and  would  have  to  be  suspended.  As  will  be  seen 
by  what  followed,  they  proved  perfectly  right ;  and 
it  may  be  said  even  to-day  that  the  Bank  Act  of  1844 
is  only  maintained  because,  at  the  critical  moment, 
everybody  knows  it  will  be  treated  as  a  dead  letter. 
This  strange  sort  of  fatalism  in  business  seems  to  be 
worthy  of  the  singular  arrangement  by  which  a  body 
of  men  who  are  not  bankers,  and  whose  personal  and 
business  interests  may  any  day  be  opposed  to  the  real 
interests  of  the  Bank,  are  placed  as  Directors  in  con- 
trol of  that  which  is  the  most  important  banking 
institution  of  the  greatest  commercial  country  in  the 
world. 

It  is  not  necessary  to  know  much  about  the  details 
of  banking,  or  to  master  the  theory  on  which  the 
Bank  Act  of  1844  is  founded,  in  order  to  understand 
the  practical  working  of  stringency  in  producing  panic. 


THE  NINETEENTH  CENTURY.  S3 


Nearly  all  manufacturers  and  traders  carry  on  their 
business  now,  as  has  been  said,  on  borrowed  capital. 
To  meet  their  own  bills  for  raw  material  or  goods, 
they  must  discount  other  people's  bills.     So  lonpj  as 
the  bank  rate  keeps  at  a  point  which  enables  them  to 
borrow  in  the  open  market,  that  is,  to  discount  their 
own  and  other  people's  paper  at  say  four  or  five,  or 
even  perhaps  six  per  cent.,  they  can  make  a  reason- 
able profit  on  their  own  small  capital,  which  forms  the 
narrow  basis  of  all  this  great  edifice  of  business.     But 
when,  owinff  to  a  farther  rise  in  the  bank  rate,  and 
the  stringency  following  thereupon,  bill-brokers  and 
bankers  are  more  anxious  to  protect  themselves  than 
to  provide  for  their  customers,  even  those  manufac- 
turers,  merchants,   and    traders    who   can    still    get 
accommodation  by  paying  for  it  find  that  their  margin 
of  profit  is  swept  away,  and  their  own  capital  locked 
lip  in  the  business  is  actually  threatened.     A  pro- 
longed squeeze  in  such  conditions  would  force  half  the 
business  world  into  liquidation.     For  goods  and  com- 
modities, however  valuable  they  may  be,  represent  to 
their  owners   no   available    means  of   meeting  their 
engagements  in  cash,  and  cash  or  its  equivalent  alone 
is  what  is  needed  to  enable  the  machine  to  pass  its  dead 
points ;  nor  will  the  best  securities  supply  the  need  of 
the  moment,  seeing  that  cases  have  occurred  in  which  the 
Bank  of  England  hesitated  to  advance  upon  Consols. 

The  crisis  of  1836-1839,  commonly  spoken  of  as  the 
crisis  of  1837,  was  therefore  the  last  which  occurred 
under  the  old  banking  conditions.  From  1844  on- 
wards the  system  has  remained  the  same  in  form  so 
far  as  the  Bank  of  England  is  concerned. 


54  COMMERCIAL  CRISES  OF 


CHAPTER   IV. 

THE   CEISIS   OF   1847. 

England  had  now  commenced  that  period  of  railway 
construction  and  Free  Trade  which  raised  the  com- 
mercial prosperity  of  the  country  to  a  higher  point 
than  ever.  There  were  those  who  imagined — and 
they  were  by  no  means  the  most  foolish  people  in  the 
countr}' — that  this  improvement  in  communications, 
followed  as  it  was  in  1846  by  a  cheapening  of  the 
main  staple  of  food  by  the  removal  of  all  Protective 
duties  on  wheat,  would  do  away  once  for  all  with 
starvation  and  distress,  and  bring  classes  together  as 
they  had  never  yet  been  combined.  As  a  consequence, 
crises  would  in  future  be  unknown,  and  trade  would 
progress  inevitably  upwards  with  inci'easing  benefit 
to  the  whole  population.  But  the  way  in  which 
Englishmen  set  to  work  to  supjily  themselves  with 
railroads  was  in  itself  a  marked  instance  of  the 
anarchy  then  prevailing  in  regard  to  what  constitute 
public  interests.  At  first  when  railways  were  in  the 
experimental  stage,  and  this  stage  lasted,  so  far  as 
public  opinion  was  affected,  much  longer  than  is  com- 
monly supposed,  it  was  perhaps  advisable,  in  the  then 
condition  of  development,  that  no  direct  steps  should 
be  taken  by  the  Government  to  control  or  administer 
the  projected  lines.     When,  however,  it  became  ap- 


THE  NINE  TEE  NT II  CENTL  R  Y.  55 

parent  that  nothing  short  of  a  complete  revolution  in 
the  entire  system  of  internal  transport  was  being 
brought  about,  it  was  certainly  the  duty  of  Parliament 
to  adopt  such  measures  as  would  restrict  waste  and 
prevent  the  reckless  gambling  which  followed  so  soon 
as  it  was  found  that  railway  construction  was  likely 
to  prove  profitable. 

It  is  always  impossible  for  the  capitalists  of  any 
country  to  maintain  permanently  an  equilibrium  be- 
tween the  amount  expended  on  works  of  permanent 
utility,  but  of  slow  return  in  the  shape  of  profit,  and 
the  extent  of  tlie  funds  which  should  be  used  to  carry 
on  business  of  more  immediate  practical  usefulness. 
But  when  a  mania  for  some  new  form  of  undertaking 
seizes  upon  the  investing  public,  then  the  savings  of 
the  community  are  too  often  utterly  thrown  away 
upon  hopeless  enterprises  or  squandered  in  construct- 
ing works  for  which  there  is  no  real  need  at  the  time. 
This  was  certainly  the  case  in  regard  to  the  era  of 
railway  construction.  The  railway  system  was 
"  rushed "  by  speculators  and  promoters,  as  the 
gold-fields  were  afterwards  rushed  by  the  workers. 
It  was  a  time  of  furious  competition  for  fresh  enter- 
prises. Incompatible  schemes  jostled  one  another  for 
precedence.  Concession-hunting,  regardless  of  the 
real  value  of  the  enterprise  for  which  the  Act  was  to 
be  obtained,  was  everywhere  the  order  of  the  da}'. 
People  who  could  ill  afford  to  lose  joined  in  the  chase, 
scraping  together  every  farthing  they  could  rake  up, 
not  for  the  sake  of  carrying  out  a  useful  undertaking,  r 
but  for  the  sake  of  the  premium  which  they  hoped  ' 
to  obtain  on  their  shares  from  someone   else.     The  ^ 


56  COMMERCIAL  CRISES  OF 


working  capital  of  business  was  diverted  from  its 
natural  province  to  hurry  on  the  development  more 
rapidly  than  ever. 

Parliament,  it  is  true,  stepped  in  to  limit  to  some 
extent,  by  more  stringent  regulations  and  detailed 
requirements,  the  unreasoning  demands  for  new 
charters.  But  this  had  little  effect.  The  most  tre- 
mendous efforts  were  made  to  hurry  forward  the 
completion  of  reports,  and  estimates,  and  plans,  and 
evidence  of  traffic  and  public  utility.  It  was  indeed 
a  time  of  stress  and  strain.  All  the  records  of  the 
period  prove  that  the  eagerness  displayed  reached  the 
pitch  of  positive  lunacy.  Half-a-dozen  or  more 
schemes  were  proposed  for  each  of  the  possible  routes, 
and  as  many  more  for  those  which  were  manifestly 
hopeless  from  the  first.  Each  promoter  was  far  more 
anxious  to  ciush  his  rivals  than  to  ensure  the  sound- 
ness of  liis  own  enterprise.  All  were  in  the  most 
desperate  haste  to  put  in  their  demands  before  the 
appointed  time  for  closing  the  list  of  applications.  If 
half  the  proposed  lines  had  been  carried  out.  Great 
Britain  would  have  been  gridironed  from  one  end  to 
another  with  railways,  and  ordinary  traffic  would 
have  been  rendered  impossible.  Engineers,  drafts- 
men, lithographers,  engravers,  and,  above  all,  lawyers, 
had  more  work  than  they  could  do,  paid  for  at  rates 
far  in  excess  of  any  that  they  had  previously  been 
able  to  command.  Landowners  who  opposed  and  land- 
owners who  favoured  railways  alike  asked  prices  for 
their  land  quite  beyond  anything  which  it  could  have 
realised  in  a  free  market.  The  cost  of  construction 
was  thus  cnormonslj"  enhanced  in  the  case  of  success- 


THE  NINETEENTH  CENTURY.  57 

ful  competitors  for  any  given  time  ;  and  the  people 
of  England  are  actuall}'  paying  to-day,  in  the  shape 
of  excessive  fares,  for  the  privilege  of  that  ruinous  r 
competition,  which  has  only  resulted  in  a  monstrous  | 
monopoly. 

The  number  of  projected  railways  was,  indeed,  out- 
side of"  the  limits  of  reason,  and  the  mileage  to  which 
the  royal  assent  was  given,  though  the  distances  to 
be  traversed  seem  small  in  these  days  of  Atlantic 
and  Pacific,  and  Siberian  Railways,  was  out  of  all 
proportion  to  the  capacities  of  that  date,  or  to  the 
capital  available  for  purposes  of  construction.  On 
the  one  day  of  the  16th  July,  1845,  no  fewer  than 
65  railway  bills  received  the  royal  assent,  which  in- 
volved the  construction  of  600  miles  of  railway,  cost- 
ing at  the  lowest  estimate  upwards  of  £13,000,000. 
In  the  same  session  of  Parliament,  678  projects  were 
submitted,  and  of  these  136,  with  a  mileage  of  1,142 
miles,  involving  a  capital  outlay  of  nearly  £26,000,000, 
were  sanctioned  by  Parliament.  In  the  course  of  a 
single  month  calls  were  made  on  shareholders  in  home 
and  foreign  railways  to  the  extent  of  £5,227,725. 
During  the  years  1845-47  no  less  than  £90,000,000 
were  spent  on  railway  building.  For  these,  it  must 
be  remembered,  were  the  days  when  Hudson  was  the 
Eailway  King,  and  people  of  the  highest  position  and 
culture  were  grovelling  at  the  feet  of  the  vulgar 
potentate,  in  order  to  share  in  the  vast  wealth  which 
he  was  assumed  to  be  the  master  of. 

Such  an  enormous  sinking  of  capital  as  this  on 
works  of  permanent  utility  but  of  slow  I'eturn,  such  a 
whirl  of  speculation  in  shares  as  followed,  must  have 


58  COMMERCIAL  CRISES  OF 

resulted  in  a  crisis  sooner  or  later.  But  as  Herr  Max 
Wirth  truly  says,  had  a  good  harvest  secured  the 
people  cheap  food,  had  the  raw  materials  of  the  chief 
industries  remained  at  a  moderate  price,  thus  enabling 
the  factories  to  continue  the  work  of  production  un- 
checked, and  thus  to  increase  the  quantity  of  their 
output  which  could  find  a  market,  the  danger  might 
have  passed  over  without  more  serious  disturbance, 
and  even  the  worst  features  of  the  crisis  itself  might 
have  possibly  been  avoided.  As  it  was,  however,  on 
the  top  of  all  this  railway  development  came  a  suc- 
cession of  failures  of  the  potato  crop  in  Ireland,  a 
short  cotton  crop  in  America  and  bad  harvests  in 
England.  Raw  materials,  instead  of  being  cheap,  were 
very  dear,  and  the  prices  of  the  necessaries  of  life  rose 
two  and  threefold.  Workers  were  discharged  on  all 
hands  in  England,  while  millions  dependent  on  one 
uncertain  staple  of  food  were  starving  in  Ireland,  and 
all  the  improvement  in  the  external  trade  which  had 
been  established  could  not  make  amends  for  the  utter 
collapse  in  the  home  markets. 

Natural  causes  conspired  this  time  with  the  arti- 
ficial mismanagement  to  intensify  the  crisis.  The 
necessity  for  importing  grain  on  a  large  scale  to  meet 
the  prevailing  distress  was  one  of  the  causes  which 
brought  the  agitation  for  the  repeal  of  the  Corn  Laws 
to  a  successful  issue  in  1846.  A  great  speculation  in 
grain  had  also  begun  which  tended  to  complicate 
matters.  Thus,  already  in  1840,  there  were  all  and 
more  than  usually  marked  symptoms  of  an  approach- 
ing crisis  in  industry  and  finance.  But  the  directors 
of  the  Bank  of  England  were  no  more  capable  of  dis- 


THE  NINETEENTH  CENTURY.  59 

cerning  the  signs  of  the  times  after  the  enactment  of 
the  Bank  Charter  Act  of  1844  than  they  were  before. 
Once  more,  by  their  policy,  they  helped  to  fan  the 
speculation,  and  by  maintaining  their  rate  of  discount 
at  the  low  point  of  2  per  cent,  and  then  3  per  cent., 
prepared  the  way  for  the  tremendous  drain  of  gold 
which  set  in  during  the  early  months  of  1847,  and 
scared  the  whole  business  community. 

The  heavy  fall  in  the  price  of  wheat  which  tumbled 
in  four  months  from  102s.  to  48s.  the  quarter,  though 
very  advantageous  to  the  people  at  large,  brought 
about  one  failure  after  another  among  grain  houses 
which  had  not  anticipated  any  such  sudden  change. 
In  October,  the  bank  rate  of  discount  was  8  per  cent, 
and  Consols  had  gone  down  from  94  in  January,  1847, 
to  79  in  that  month.  Railway  shares  fell  15  to  25 
per  cent.,  bills  could  scarcely  be  discounted  at  any 
price,  respectable  houses  were  closing  their  doors  by 
the  dozen,  workmen  were  being  discharged  in  every 
direction,  2,500  navvies  being  left  workless  by  the 
contractors  for  the  London  and  North  Western  Rail- 
way alone.  Tens  of  thousands  of  workers  were,  in 
fact,  out  of  employment  and  starving,  and  the  condi- 
tion of  the  people  during  the  winter  seemed  likely  to 
be  worse  than  ever ;  while,  what  was  taking  place 
alieady  in  Ireland,  and  what  followed  in  that  awful 
winter  of  ]847,  has  never  been  forgotten  or  forgiven 
by  Irishmen  in  any  part  of  the  world. 

It  was  at  this  juncture,  October,  1847,  that  the 
worthlessness  of  the  Bank  Act  of  1844  in  time  of 
crisis  was  tirst  made  manifest  to  the  world.  Utter 
carelessness  was,  as  usual,  followed  by  unreasoning 


6o  COMMERCIAL  CRISES  OF 

panic.  As  the  gold  was  drained  aAvay  to  meet  foreign 
demands,  the  directors  were  forced  by  the  conditions  of 
their  charter  to  lessen  the  accommodation  which  they 
could  give  at  the  very  moment  when  the  need  for  such 
accommodation  was  most  pressing,  and  nothing  short 
of  the  most  liberal  extension  of  credit  to  those  who 
could  reasonably  demand  it  could,  by  any  possibility, 
check  the  panic.  The  bank  rate  stood  at  8  per  cent., 
and  before  the  Bank  Act  was  suspended  and  the 
directors  were  permitted  to  issue  notes  in  excess  of  the 
£15,000,000  allowed  by  law  without  holding  gold 
against  them,  the  banking  department  was  actually 
reduced  to  less  than  £2,000,000.  The  bank  must 
have  stopped  payment  so  far  as  the  banking  depart- 
ment was  concerned,  unless  what  was  virtually  bank- 
ruptcy had  been  declared  and  the  Bank  Act  had  been 
suspended.  This  suspension  itself,  though  it  improved 
matters,  did  not  at  once  end  the  crisis,  which  dragged 
on  for  fully  three  months  more.  Confidence  had  been 
immediately  shaken,  and  the  lack  of  coin  tended  to 
lengthen  the  period  of  inevitable  distrust. 

By  degrees,  as  the  memorable  year  1848  approached, 
confidence  began  to  be  re-established,  and  the  bank 
rate  gave  evidence,  by  its  steady  reduction,  that  the 
season  of  panic  was  over  and  that  only  a  sort  of  rea- 
sonable mistrust  in  some  quarters  survived. 

Already  the  record  is  becoming  almost  monotonous 
in  its  similarity.  The  circumstances,  indeed,  change ; 
but  the  blunders  are  repeated  and  the  follies  repro- 
duce themselves  with  an  unvarying  regularity.  New 
methods  of  production  arc  discovered  and  applied. 
Straightway,  they  are  pushed  to  such  an  extent  with- 


THE  NINETEENTH  CENTURY.  6i 

out  consideration  or  foresight,  that,  though  the  few 
become  rich,  the  many  are  fearfully  impoverished  and 
suffer  more  from  social  and  economical  perturbations 
than  from  any  natural  misfortune.  An  energetic 
people,  with  an  unbounded  territory  around  them, 
begin  to  develope  its  resources  in  earnest,  and  again 
carry  the  process  to  such  a  pitch  as  to  be  incompatible 
with  the  system  of  profit  under  which  they  are  work- 
ing, and  the  methods  of  banking  attendant  thereon. 
Another  collapse  follows,  affecting  populations  on  both 
sides  of  the  Atlantic.  A  means  of  land  transportation, 
more  rapid  and  advantageous  than  any  before  known, 
is  adopted  in  the  wealthiest  and  most  civilised  country 
in  the  world.  The  first  effect  of  what  should  be  an 
advantage  to  all  the  inhabitants  is  first  to  turn  the 
heads  of  the  entire  money-manipulating  portion  of 
the  population,  to  force  on  a  mania  for  speculation  of 
a  most  injurious  kind,  and,  eventually,  in  conjunction 
with  other  causes,  to  throw  once  more  thousands  of 
people  out  of  work  and  into  miseiy  and  starvation. 
So  little  do  the  governing  classes  and  mercantile  men 
appreciate  the  situation  that  they  themselves  set  on 
foot,  with  a  view  to  lessen  the  evils  arising  from  these 
recurring  periods  of  break-down,  a  banking  arrange- 
ment which  can  only  be  saved  from  landing  the  whole 
country  in  bankruptcy  by  declaring  its  own  bank- 
ruptcy just  before  this  actually  occurs. 

But  in  this  crisis  of  1847  we  can  trace  more  clearly 
than  heretofore  the  international  and  almost  world- 
wide nature  of  these  commercial  convulsions.  Paris, 
Amsterdam,  Frankfort,  and  New  York,  all  felt  the 
counterstroke  of  this  primarily  English  crisis  of  1847, 


62  COMMERCIAL  CRISES  OF 


and  the  great  political  revolutionary  movement  of 
1848  on  the  Continent,  which  in  part  assumed  a 
socialistic  shape,  was  preceded  by  the  shock  of  the 
economic  earthquake  that  had  its  centre  of  disturb- 
ance in  London.  Bankruptcies,  not  only  of  trading 
firms,  but  of  industrial  concerns,  followed.  The  same 
causes  which  had  occasioned  the  upset  in  English 
business,  outside  the  great  railway  mania,  were  now 
manifestly  at  work  on  the  Continent.  Banks  were 
compelled  to  raise  their  rates  of  interest  on  advances 
to  protect  themselves  ;  and  that  mutual  interchange  of 
compliments,  in  the  shape  of  unloading  securities  by 
turns  on  the  various  international  financial  exchanges, 
became  henceforward  a  permanent  portion  of  the 
general  system  of  finance.  The  next  great  crisis  will 
exhibit  this  solidarity  of  markets  in  a  yet  more  strik- 
ing manner. 

Meanwhile,  a  sort  of  law  of  periodicity  was  be- 
ginning to  be  traced.  Men  had  not  yet  begun  to  talk 
of  ten  years  as  the  trade  cycle,  but  that  ups  and 
downs  of  trade  were  to  be  looked  for  as  a  necessary 
accompaniment  of  the  great  extension'  of  modern 
industry  and  finance  was  a  growing  opinion.  In 
England,  at  any  rate,  1815,  1825,  1837  and  1847,  in- 
duced all  connected  with  business  to  regard  similar 
phenomena  of  inflation  as  the  almost  certain  fore- 
runners of  a  .similar  crash  in  due  time. 


THE  NINETEENTH  CENTURY.  63 


CHAPTER  V. 

THE    CRISIS    OF    1857. 

The  ten  year  period  from  1847  to  1857  is,  perhaps, 
the  most  noteworthy  period  in  the  history  of  the 
eivihsed  world,  since  the  discovery  of  America  and 
the  rounding  of  the  Cape  of  Good  Hope  entirely 
changed  the  outlook  for  European  commerce.  It  is 
true  that  no  geographical  discoveries  were  made  at  all 
comparable  in  importance  to  tbose  which  astounded 
mankind  at  the  end  of  the  fifteenth  and  beo;inning  of 
the  sixteenth"  century,  neither  w^ere  there  any  similar 
conquests  to  those  of  Mexico  and  Peru  to  record. 
But  the  development  of  railways,  the  increase  of 
steam  vessels,  the  great  gold  discoveries  of  California, 
Australia,  and  New  Zealand,  had  practically  the  effect 
of  bringing  new  w^orlds  into  connection  with  the  old 
as  well  as  of  stimulating  the  old-settled  communities  to 
extraordinary  efforts. 

Close  upon  the  heels  of  the  crisis  of  1847,  came  the 
revolutionary  shake  of  1848,  wdiich,  notwithstanding 
the  Chartist  scare  in  London  on  April  lOtli,  had  less 
effect  on  England  than  on  any  other  country.  In 
this  year,  1848,  also  began  that  wholesale  emigration 
of  the    Irish    people  to  America   which  has  done  so 


64  COMMERCIAL  CRISES  OF 

much  to  build  up  the  wealth  of  the  great  republic  of 
the  United  States.  In  1817,  gold  was  discovered  in 
California,  and  in  1849  began  that  remarkable  rush 
of  the  most  active  and  adventurous  spirits  among  the 
young  men  of  Europe  and  America  to  the  new  lands 
of  the  golden  fleece  in  the  Pacific  Ocean,  which  has 
had  ever  since  such  a  ^reat  influence  on  the  commerce 
of  the  globe.  New  life  was  given  to  enterprise  in 
every  direction.  Gold-mining  is  of  itself  necessarily 
a  wasteful  and  unproductive  employment  of  labour 
and  capital.  For  gold  has  little  real  utility  as  an 
article  of  human  consumption,  and  is  only  useful  in 
quantity  as  a  medium  of  exchange  and  standard  of 
value  in  regard  to  other  products  of  human  labour. 
Nevertheless,  the  direct  and  indirect  effect  of  these 
great  gold  discoveries  was  to  give  a  tremendous  im- 
petus to  trade. 

Before  these  discoveries  a  general  shrinkage  of 
prices  had  set  in  along  the  whole  range  of  commodi- 
ties, and  as  this  was  partly  due  to  scarcity  of  gold, 
speculations  were  even  indulged  in  as  to  the  necessity 
for  the  abandonment  of  gold  and  the  substitution  of 
silver  as  the  standard  of  value  and  most  important  cur- 
rency even  in  the  wealthiest  country.  The  shrinkage  of 
prices  was  and  is  due  to  far  more  complicated  causes 
than  the  abundance  or  scarcity  of  the  precious  metals  ; 
but  in  this  particular  case  it  is  probable  that  the 
quantity  of  gold  in  circulation  or  available,  say  in  the 
year  1848,  was  insufliciont  to  maintain  tlie  old  level 
of  prices  as  measured  in  gold,  and  that,  but  for  the 
new  discoveries,  some  mcclianical  difficulties  would 
have  been  encountered  in  the  endeavour  to  accom- 


THE  NINETEENTH  CEXTURY.  65 

modate  business  to  the  lower  ]ilane  of  prices.  But, 
■with  the  opening  up  of  the  new  gold  fields,  all  fear  of 
change  in  that  direction  was  at  an  end.  Gold  could 
now  be  raised  for  a  time  at  less  labour-cost  than  ever 
before  in  the  history  of  human  societ}';  a  higher  in 
place  of  a  lower  level  of  prices  was  on  the  average 
established  ;  and,  as  all  the  gold  was  raised  in  countries 
wliich  were  inhabited  by  English-speaking  people 
and  with  which  English  traders  then  had  most  ad- 
vantageous relations,  England  was  the  nation  which 
benefited  in  the  first  instance  by  the  extraordinarily 
rapid  development  of  California  and  Australia  in  the 
period  with  which  we  are  dealing. 

Thanks  to  the  influx  of  gold  which  now  commenced 
on  a  scale  quite  unprecedented,  there  was  no  diffi- 
culty in  meeting  the  demands  of  the  Governments  of 
France  and  England  for  currency  during  the  Crimean 
War  ;  whereas,  but  for  this,  it  is  the  opinion  of  those 
best  able  to  judge  that  the  Bank  of  England  would 
have  been  forced  to  suspend  specie  payments  as  it  did 
fiom  1797  to  1819.  The  gold  imports  from  America 
and  Australia  removed  all  fear  of  any  such  suspen- 
sion. Following  upon  the  discoveries  and  the  emigra- 
tion came,  as  has  been  said,  an  enormous  demand  for 
English  commodities,  so  that  the  crisis  of  18-17  and 
the  political  disturbances  of  1848  were  soon  forgotten 
in  the  unexampled  revival  of  trade  which  ensued.  In 
1851,  the  lookout  was  already  so  favourable  that,  at 
the  first  great  International  Exhibition  held  in  that 
year,  there  was  a  general  outburst  of  mutual  congratula- 
tions, and  some  actually  thought,  and  many  still  more 
foolishly  said,  that  the  era  of  peace  and  goodwill  among 


66  COMMERCIAL  CRISES  OF 


men  had  set  in,  that  wars  henceforth  would  be  im- 
possible, and  that  those  present  at  the  Ciystal  Palace 
in  Hyde  Park  were  unconsciously  celebrating  the 
inauguration  of  the  domination  of  industrialism  as 
against  that  of  militarism  all  over  the  world. 

The  mere  fact  that  such  a  successful  International 
Exhibition  should  have  been  held  in  London  in  1851 
was,  of  course,  an  evidence  of  the  manner  in  which 
the  various  nations  were  being  knit  together  in  one 
sense  by  the  bonds  of  trade,  as  well  as  a  proof  that 
the  means  of  communication  and  transport  were 
vastly  improving,  and  abridging  distance  to  an  un- 
precedented degree.  But  the  Exhibition  itself  did 
but  serve  to  intensify  that  national  and  international 
competition  and  anxiety  to  capture  new  markets 
which  lie  at  the  root  of  all  the  industrial  anarchj  and 
crisis  that  produce  periodically  the  terrible  results 
which  no  pretence  of  peaceful  intentions  can  alter. 

But  from  1851  onwards,  until  the  Crimean  War 
began,  such  was  the  prosperity  in  trade  that  there  was 
really  some  ground  for  imagining  that  the  sanguine 
prophecies  of  the  Cobdenite  school  would  be  fulfilled. 
The  output  of  gold,  and  with  it 'the  demand  for  Eng- 
lish goods  for  America  and  then  Australia,  continually 
increased.  Continental  trade  developed  in  almost 
ec[ual  ratio,  and  that  German  emigration  to  the  United 
States  began  which  was  destined  to  assume  even 
greater  proportions  than  the  emigration  from  Ireland, 
and  to  have  a  yet  more  beneficial  influence  on  the 
fortunes  of  the  Great  Republic.  JSTow,  too,  that  ex- 
port of  grain  from  America  to  Europe,  and  particularly 
to  England,  began  to  attain  a  magnitude  which  sur- 


THE  NINETEENTH  CENTURY.  67 

passed  even  the  old  export  of  cotton.  The  compara- 
tively cheap  food  thus  provided,  even  with  a  rapidly 
increasing"  population,  enabled  the  capitalists  to  realise 
enormous  profits,  and  such  was  the  demand  for  Eng- 
lish products  that  the  nation  was  able  to  bear  the  bad 
harvest  of  1853,  and  to  pass  through  the  Crimean  War, 
with  its  vast  expenditure  and  fearful  mismanagement, 
almost  uninjured.  There  were  short  lulls  in  the  for- 
ward rush,  but,  on  tlie  whole,  there  was  no  check  in 
this  long  sweep  of  wealth-creation  for  the  civilised 
peoples,  or  rather  for  the  upper  and  middle  classes  of 
those  peoples.  England,  as  the  chief  capitalist  coun- 
try, benefited  most  by  the  impetus  given  to  produc- 
tion and  commerce,  but  other  nations  had  now  entered 
upon  the  same  stage  of  development,  and  on  the  Con- 
tinent and  in  the  United  States  riches  were  piled  up 
to  an  extent  previouslj^  undreamed  of. 

For,  while  gold  was  pouring  into  England  at  the 
average  rate  lor  a  series  of  years  of  upwards  of 
£25,000,000  a-year,  and  the  total  supply  of  gold  in 
the  world  was  increased  by  fully  one-third  in  the 
course  of  nine  years,  the  demand  for  capital  was  also 
growing  in  every  direction.  Improved  methods  of 
production,  the  provision  of  larger  and  more  rapid 
steam- vessels  for  the  transport  of  the  masses  of  raw 
material  and  commodities  to  and  fro,  the  continuous 
construction  of  railways,  not  only  in  England  and  the 
United  States,  but  all  over  the  continent  of  Europe, 
gave  English  capitalists  most  profitable  outlets  for 
their  accumulations  ;  while  every  new  district  opened 
up,  and  every  fresh  market  conquered,  tended  to  swell 
the  volume  of  external  trade.     Home  trade  also  re- 


68  COMMERCIAL  CRISES  OF 


ceivctl  a  progressive  impulse  from  the  completion  and 
extension  of  tlie  main  lines  of  railway,  which  was  an- 
other feature  of  this  time  of  amazing  development. 
It  is  stated  that  in  the  five  j^ears  from  1846  to  1850, 
not  less  than  £150,000,000  were  spent  on  English 
railways,  and  in  an  astonishingly  short  space  of  time 
the  island  was  covered  with  the  new  roads. 

For  the  slack  time  in  this  branch  of  the  new  de- 
velopment lasted  for  little  more  than  a  few  months 
after  the  crisis  of  1847,  and  by  the  year  1855  there 
were  8,300  miles  of  railway,  nearly  all  of  them  with 
double  lines  of  rails,  opened  in  Great  Britain.  We 
are  even  now,  perhaps,  too  near  to  these  years  of  sud- 
den expansion,  and  also  too  much  accustomed  our- 
selves to  the  methods  which  brought  it  about,  fully 
to  appreciate  the  contrast  between  what  had  been  and 
what  was.  But  it  is  safe  to  say  that  a  still  greater 
transformation  was  wrought  in  the  general  condition 
and  commercial  power  of  England  at  this  date  than 
had  been  effected  even  between  the  end  of  the  eigh- 
teenth century  and  1837.  All  the  effects  of  the  far- 
reaching  revolution  in  the  methods  of  production  and 
transportation  seemed  to  be  realised  "at  once,  and  the 
shrinkage  of  the  planet,  as  represented  by  the  com- 
parative accessibility  of  its  parts,  became  strikingly 
apparent. 

Moreover,  the  influence  of  the  gold  discoveries  by 
no  means  stopped  short  at  the  multiplication  of  the 
precious  metals,  and  the  consequent  temporary  ease  in 
the  money  market  and  inflation  in  various  directions. 
Those  who  went  forth  as  gold-diggers  soon  turned 
many  of  them  to  the  production   of  other   wealth. 


THE  NINETEENTH  CENTURY.  69 

California  and  the  West  of  America  generally,  as  well 
as  Australia  and  New  Zealand,  found  that  labour  ex- 
pended on  the  growing  of  wool  and  cereals,  meat  and 
fruits,  represented  in  the  long  run  a  far  more  certain 
return  than  its  precarious  and  economically  wasteful 
employment  on  mining.  It  was  not  so  much  the  gold 
production  itself  as  the  development  of  new  territories 
to  which  this  gold  production  led  that  really  increased 
the  wealth  of  the  world.  It  is  indeed  more  than 
doubtful  whether  the  quantity  of  labour  expended 
directly  and  indirectly  in  the  search  for  gold  would 
not  have  been  better  repaid,  even  to  the  miners  them- 
selves, by  work  in  other  directions.  The  waste  of 
labour  in  mere  shaft-sinking,  which  brings  no  greater 
benefit  to  the  unlucky  prospector  than  digging  a  hole 
and  filling  it  up  again,  can  only  be  fully  appreciated 
by  those  who  have  observed  the  process  going  on 
under  their  eyes;  while  the  cost  of  conveying  material 
and  food  to  some  of  the  distant  diggings,  before  rail- 
ways  or  even  roads  were  made,  rendered  the  ordinary 
standard  of  life  of  a  digger  on  the  gold-fields  as  dear 
as  the  most  luxurious  cookery  in  a  city  in  Europe 
could  possibly  have  been. 

Thus  no  sooner  were  the  richer  and  more  accessible 
alluvial  deposits  exhausted,  the  precious  metal  having 
then  to  be  sought  farther  up  country  or  extracted 
from  the  quartz  by  the  expenditure  of  much  capital 
and  labour  in  sinking  to  considerable  depths  and  the 
provision  of  elaborate  machinery  for  crushing  and 
amalgamation,  than  it  was  found  that  in  many  cases 
even  gold  itself  can  be  bought  too  dear.  The  exces- 
sive  outlay  on    these    gambling  ventures,  therefore, 


70  COMMERCIAL  CRISES  OP 

tended  to  help  on  the  crisis  which  other  events  were 
preparing. 

A  careful  survey  of  the  countries  which  now  formed 
a  portion  of  the  great  world-market  shows  that  tlie 
United  States,  more  even  than  Great  Britain,  was 
likoh'  to  benefit  by  this  rising  cj^cle  of  trade  and  tlie 
construction  of  railways.  Improved  communications 
were  above  all  needed  to  develop  the  marvellous  re- 
sources of  the  vast  territory  which,  though  it  had 
become  more  densely  populated  since  the  crash  of 
1837,  was  still,  at  the  beginning  of  the  upward  move- 
ment of  1849,  in  great  need  of  further  immigration 
from  Europe.  This  immigration,  as  has  been  said, 
was  supplied  at  first  from  Ireland,  and  then  more 
slowly,  but  more  surely,  from  Germany,  England,  and 
Scandinavia.  Apart  from  the  savings  which  these 
invaluable  labourers  brought  with  them,  they  also,  by 
the  outlet  which  their  industry  provided,  and  the 
vast  wealth  which  it  was  at  once  recognised  that 
their  settlement  in  so  rich  an  agricultural  and  mineral 
region  must  create,  induced.  European  capitalists,  in 
spite  of  their  earlier  experience,  to  embark  in  American 
ventures  on  a  larger  scale  than  ever. 

As  England  ceased  to  produce  sufficient  wheat  for 
her  needs,  America  came  forward  to  supply  the  want; 
and  during  the  Crimean  War,  the  people  of  the 
United  States  derived  great  profit  from  the  quantities 
of  food  which  they  were  able  to  furnish  without 
difticulty.  The  enormous  production  and  export  of 
food  stufis,  in  the  shape  of  wheat,  maize,  etc.,  added  to 
the  old  staples  of  rice  and  cotton,  grown  by  the  slave- 
owners of  the  South,  turned  North  America  into  a 


THE  NINE  TEENTH  CENTUR  Y.  7 1 


hu^e  factory  farnij  to  supply  Europe  with  grain  and 
raw  material.  In  return  she  took  great  quantities  of 
manufactured  articles  of  all  kinds.  An  increase  of 
wealth  per  head  of  population  was  thus  established, 
unequalled  even  in  Great  Britain,  and  at  this  time  the 
wealth  was  far  more  evenly  distributed  than  it  is  to- 
day throughout  the  Northern  States,  whose  political 
and  industrial  preponderance  in  the  Union  was  becom- 
ing more  marked  every  year.  Republican  America, 
notwithstanding  the  institution  of  slavery,  was  re- 
garded throughout  Europe  as  the  land  of  promise,  and 
the  tidings  of  her  prosperity  and  rapid  expansion 
encouraged  the  continuous  immigration  which  still 
further  extended  her  wealth  and  prosperity.  Here, 
as  elsewhere,  the  apparent  wealth  represented  by  the 
output  of  gold  tended  to  increase  the  activity  of  the 
production  of  real  wealth  ;  and,  here  as  elsewhere,  ex- 
cessive speculation,  fraud,  luxury,  and  outrageous 
extravagance  followed  ;  while  too  great  a  proportion 
of  the  savings  of  the  well-to-do  were  again  expended 
on  works  of  permanent  utility  but  slow  return,  such 
as  railways,  for  the  gain  even  of  the  capitalist 
class. 

Up  to  the  spring  of  1857,  with  the  blindness  which 
is  peculiar  to  such  cases,  no  one  saw  any  sign  of  the 
approaching  crash.  The  Americans  took  good  care 
to  let  all  the  world  know  of  their  wonderful  pro- 
gress. "  A  report,  published  at  the  commencement  of 
1857,  stated  that  the  year  1856  had  given  results  of 
which  the  past  had  afforded  no  example.  Enormous 
advance  had  been  made ;  the  cultivation  of  new  terri- 
tories,  the    produce    of    harvests,    the   extension   of 


72  COMMERCIAL  CRISES  OF 

factories,  the  exploitation  of  mines,  the  exports  and 
imports,  the  carrying  trade,  shipbuilding,  the  railway- 
returns,  the  spread  and  improvement  of  cities — in  a 
word,  anything  which  can  tend  to  the  enrichment  of 
a  great  country,  has  received  such  a  vigorous  im- 
pulse that,  since  the  DecUxration  of  Independence, 
not  even  the  most  far-seeing  men  had  ventured 
to  predict  the  attainment  of  such  a  high  degree  of 
prosperity. 

"  And,  as  a  matter  of  fact,  statistics  seemed  to  justify 
this  opinion.  In  the  clearing-house  affairs  of  New 
York  there  was  an  increase  of  1,300,000,000  dollars  or 
80  per  cent.  The  imports  and  exports  of  New  York 
had  risen  in  1856  to  the  extent  of  33  per  cent.,  and 
the  railway  traffic  from  20  to  30  per  cent.  Not  less 
than  17,600,000  acres  of  State  territories  had  been 
sold,  an  extent  equal  to  that  of  Belgium  and  Holland 
put  together.  In  addition,  the  Railway  Congress  had 
ceded  to  such  States  as  later  wished  to  build  lines 
21,700,000  acres  of  land,  which  makes  up  in  all 
39,700,000  acres,  or  about  a  third  of  entire  France. 
Agricultural  and  industrial  production  hall  kept  pace 
with  the  progress  noted  above :  it  had  risen  in  1856 
to  2,600,000,obo  dollars,  that  is,  had  increased  three- 
fold in  fifteen  years.  Immovable  property  was  esti- 
mated at  over  11,000,000,000  dollars,  and  the  popula- 
tion at  27,000,000.  The  public  debt  had  been  re- 
duced in  this  year  by  25  per  cent.,  that  is,  to 
30,000,000  dollars.  The  length  of  telegraph  lines 
exceeded  50,000  English  miles.  The  railways,  of 
which  there  were  upwards  of  21,000  miles  in  1855, 
were  extended  to  24,000  miles  in  1850,  and  the  follow- 


THE  NINETEENTH  CENTURY.  73 

ing  table  shows  their  cost  to  have  been  the  cheapest 
in  the  world : 


English  Miles. 

Cost  in  Dollars. 

Cost  per  Mile. 

United  States 

(1856) 

24,195 

846,825,000 

$35,000 

Gi'eat  Britain 

,  (1855) 

8,297 

1,487,916,420 

179,000 

France 

, (1856) 
, (1855) 

4,038 

616,318,995 

152,000 

Germany 

3,213 

228,000,000 

71,000 

Prussia 

(1855) 

1,290 

145,000,000 

63,000 

Belgium 

(1855) 

1,005 

98,500,000 

30,000" 

Such  a  balance  sheet  had  never  before  been  drawn 
for  any  people,  and  it  is  not  surprisinoj  that  many- 
heads  were  turned  b}^  it,  or  that  the  majority  even  of 
cool-headed  men  of  business  thought  that,  based  as  it 
was  upon  agricultural  production,  and  accompanied 
by  a  great  increase  of  population  and  a  simultaneous 
reduction  of  the  State  debt,  there  was  no  reason  to 
fear  any  sudden  overthrow.  Nevertheless,  the  collapse 
was  all  ready.  The  very  increase  of  prosperity,  not 
only  in  agriculture,  but  in  manufacture,  the  develop- 
ment of  tlie  iron  and  coal  of  Pennsylvania,  as  well  as 
the  manufactures  of  New  England;  the  astounding 
railway  construction,  on  which  the  whole  nation 
prided  itself,  all  prepared  the  way  for  the  crisis  which 
was  close  at  hand.  Some  of  the  causes  which  rendered 
that  crisis  so  disastrous  were  common  to  other  coun- 
tries with  the  United  States ;  but  the  banking  system 
of  America  tended  to  make  it  worse  when  it  came 
than  elsewhere,  as  its  great  agricultural  resources 
rendered  the  revival  more  rapid. 

At  this  time  American  banks  were  lending  in  excess 
of  all  reason,  and  on  the  22nd  of  August,  1857,  the 


74  COMMERCIAL  CRISES  OF 


total  loans  of  the  New  York  banks  actually  exceeded 
by  12,000,000  dollars  the  total  amount  of  specie,  notes, 
and  deposits  in  their  coffers.  At  the  same  time,  how- 
ever, the  note  issue  was  fairly  sound  in  relation  to 
the  specie  held  against  them.  "  The  suspension  of  the 
banks  which  soon  followed  arose,  not  from  the  incon- 
vertibilit}^  of  notes,  but  from  the  wholesale  withdrawal 
of  deposits."  But  in  America  also  was  seen  the  bad 
side  of  the  gold  discoveries.  Men  forgot  that  gold 
will  no  more  feed  or  clothe  or  house  labourers  than 
an  issue  of  assignats.  Gold  is  in  America,  as  every- 
where else,  only  a  representation  of  value  and  a  means 
of  exchange.  But  the  superfluity  of  gold  misled  men 
of  business  into  imagining  that  an  increase  of  currency, 
or  an  accumulation  of  the  precious  metals  in  reserve, 
meant  that  the  country  was  really  wealthier  to  that 
extent  and  yet  more.  Thus,  on  the  one  hand,  the 
rash  policy  of  the  banks  of  deposit  in  discounting 
beyond  reason,  and,  on  the  other,  the  abundance  of 
the  precious  metals,  deceived  the  world  of  business  as 
to  what  was  in  store  for  it.  This  state  "Df  thinofs  was 
accompanied  by  the  usual  chicane  and  I'ascality,  on 
winch  it  is  not  necessary  to  dwell. 

But  the  main  causes  of  the  collapse  were  the  same 
as  ever :  the  incapacity  of  the  heads  of  the  capitalist 
system  to  regulate  the  amount  of  capital  expended  on 
the  development  of  different  branches  of  industry. 
Over-speculation  in  every  direction  was  accompanied 
also  by  a  tremendous  accumulation  of  goods  in  the 
warehouses,  in  anticipation  of  the  higher  prices  which 
seemed  certain  from  the  success  hitherto  attained  in 
disposing  of  counnodities.      Much  of  the  goods  thus 


THE  NINETEENTH  CENTURY.  75 


stored  had  been  obtained  upon  credit  from  Europe. 
At  the  first  serious  shake,  therefore,  down  must  come 
the  entire  edifice  on  both  sides  of  the  Atlantic.  At 
the  beofinniuo-  of  August,  a  time  of  year  when  the 
city  of  New  York  is  out  of  season,  and  men  of  business 
are  as  far  as  possible  away  on  their  holidaj's,  the 
crisis  commenced  with  a  few  small  failures.  A  week 
later  money  was  so  tight,  owing  to  withdrawals  of 
deposits,  and  the  hoarding  of  gold  and  silver,  that 
business  was  carried  on  with  difficulty.  On  the  24th 
of  August  a  great  bank  of  high  repute  suspended 
payment.  Then  the  panic  began  in  grim  earnest. 
Bankers,  merchants,  financiers,  and  stock-jobbers  all 
lost  their  heads  tosfether.  The  banks  restricted  their 
advances  and  called  in  their  loans ;  the  rate  of  discount 
ran  up  to  25  per  cent. ;  bank  shares,  railway  shares, 
and  bonds  were  unsaleable ;  and  bank  fViilures, 
mercantile  failures,  and  traders'  bankruptcies  were 
rather  the  rule  than  the  exception. 

By  the  month  of  October  business  was  at  a  stand- 
still, and  the  most  necessary  trade  could  scarcely  be 
carried  on,  though  the  warehouses,  as  usual  at  such 
periods,  were  glutted  with  goods  that  nobody  could 
buy.  The  rate  of  interest  ran  up  to  GO,  to  100,  per  cent. 
Nobody  could  melt  his  bills.  Utter  consternation  set 
in,  aggravated  by  the  great  excitability  which 
Americans  evince  at  such  times.  A  run  on  the 
soundest  banks  began  such  as  had  never  before  been 
experienced.  The  run  began  on  the  9th.  By  the 
evening  of  the  13  th,  eighteen  banks  had  come  down 
with  an  indebtedness  to  depositors  of  about  21,000,000 
dollars.     Remittances  could  no  lono-er  be  made  to  the 


76  COMMERCIAL  CRISES  OE 

West,  and  a  fall  in  prices  of  commodities  from  10  to  35 
per  cent,  had  taken  place  all  along  the  line.  Fourteen 
great  railway  companies,  whose  names  are  well  known 
in  London,  such  as  the  Illinois  Central,  the  Philadelphia, 
and  Reading,  the  New  York  and  Lake  Eric,  and  many 
more  also  suspended  payment. 

The  influence  of  the  crisis  upon  industry  was  as 
bad  as  it  was  upon  trade,  finance,  and  speculation. 
Mill  after  mill  had  to  close  or  work  short  time,  seeing 
that  after  having  worked  double  tides  in  order  to  take 
advantage  of  high  prices  and  a  good  market,  the 
manufacturers  now  found  themselves  face  to  face  with 
a  shrinkage  in  the  prices  of  manufactured  goods  of  15 
to  20  per  cent,  below  what  it  had  cost  them  to  pro- 
duce the  goods.  Nor  was  there  any  prospect  of  im- 
mediate improvement,  inasmuch  that,  owing  to  the 
falling  off  of  the  demand  for  cotton  for  the  Endish 
mills,  the  price  of  the  raw  material  seemed  likely  to 
fall  faither  rather  than  to  rise.  Miners  of  all  sorts  were 
likewise  hard  put  to  it  to  live ;  and,  most  monstrous 
irony  of  all,  the  finest  harvest  ever  known  in  the 
United  States,  unfortunately,  fell  in  with,  one  of  the 
best  harvests  ever  garnered  in  Europe.  Wheat  was 
consequently  unsaleable,  and  hundreds  of  millions  of 
bushels  were  wasted  ;  while  men  who  badly  wanted 
them  were  discharged  from  work.  In  every  branch 
of  industry  similar  phenomena  were  to  be  observed. 
America  had  the  lionour  of  commencing  the  worst 
crisis  of  the  century. 

It  was  no  long  time  before  England  felt  the  effects 
of  the  American  crisis,  though  in  this  country,  as  on 
the  other  side  of  the  Atlantic,  men  of  business,  who 


THE  NINETEENTH  CENTURY.  77 


ought  to  have  been  specially  capable  of  forecasting  the 
course  of  events,  imagined  that  the  difficulties  would 
be  trifling,  that  only  American  business  would  be 
seriously  influenced,  and  this  only  for  a  time.  While 
everyone  prophesied  smooth  things,  the  conditions 
which  rendered  a  storm  inevitable  had  been  prepared. 
The  tremendous  fall  in  American  securities,  and  the 
shrinkage  in  the  price  of  commodities  all  round,  seem 
nowadays  quite  sufficient  to  have  warned  the  whole 
mercantile  and  financial  community  that  the  abnormal 
extension  of  industrial  enterprise  had  been  carried  far 
beyond  the  point  of  safety,  and  that,  in  particular, 
the  export  trade  had  been  pushed  far  in  excess  of 
what  could  be  immediately  absorbed.  Similar  causes 
liad  been  at  work  in  England,  also,  to  those  which 
occasioned  the  collapse  in  America.  Though  the 
mileage  of  English  railways  constructed  had  been 
small  in  comparison  with  those  built  in  the  United 
States,  the  amount  of  capital  sunk  had  been  much 
greater,  and,  "unlike  that  invested  in  America,  had  not 
been  borrowed  from  abroad.  In  addition,  the  great 
gold  supply  from  California  and  Australia  had  engen- 
dered a  feeling  of  over-confidence,  based  on  the  gold 
itself  as  capital. 

Further,  though  the  English  banks  were  sound  in 
comparison  with  the  American,  the  conclusion  of 
peace  after  the  Crimean  War  had  brought  about,  on  a 
smaller  scale,  similar  results  to  those  which  were  noted 
after  the  peace  of  1815.  The  war  had  been  a  good 
customer  for  trade.  The  money  borrowed,  and  the 
taxes  levied,  had  been  spent  unproductively,  it  is  true, 
but  not  more  so  than  if  they  had  been  thrown  away 


78  COMMERCIAL  CRISES  OF 

in  commandinjT  the  production  of  luxuries  for  the 
rich.  Ou  the  other  hand,  the  war  had  given  a  great 
deal  of  employment  to  the  working-classes  in  various 
departments,  and  had  created  a  demand  for  commodi- 
ties which  now  ceased.  At  the  same  time,  also,  the 
war  with  China,  and  the  mutiny  in  India,  upset  the 
Eastern  trade.  Looking  back,  therefore,  at  all  the 
circumstances  as  they  are  baldly  set  forth  in  the 
chronicles  of  the  time,  the  wonder  seems  to  be  not 
that  the  crisis  of  1857  proved  so  disastrous,  by  reason 
of  the  blunders  which  were  made  and  the  want  of 
foresight  displayed,  but  that  it  did  not  result  in  a  still 
more  widespread  calamity.  The  record  of  the  imports 
•nto  New  York  alone  show  the  lengths  to  which  over- 
trading from  Europe  had  been  carried. 

The  crisis  began  in  America  in  August.  A  little 
more  than  two  months  later,  the  Liverpool  City  Bank 
closed  its  doors,  and  then  the  crash  began  in  earnest 
in  England.  Houses  connected  with  the  American 
trade  began  to  fall  one  after  the  other  in  the  early 
daj's  of  November.  On  the  9th  of  November,  1857 
— the  date  is  even  still  too  well  remembei-ed  in  Scot- 
land— the  Western  Bank  of  Scotland,  with  a  paid-up 
share  capital  of  £1,500,000,  and  deposits  to  the  extent 
of  £5,000,000,  suspended  payment,  and  with  it  fell  its 
ninety-eigiit  branch  banks.  Then  ensued  a  panic  of 
the  same  nature  as  had  been  seen  in  New  York,  but 
affecting  the  whole  population.  The  savings  not  only 
of  the  well-to-do  of  the  trading  and  shopkeeping 
classes,  but  of  the  small  farmers  and  workers  in  all 
parts  of  Scotland,  had  been  placed  on  deposit  in  these 
l>ranch    banks.     Such    deposits  were   transmitted   in 


THE  NINETEENTH  CENTURY.  79 

great  part  to  Glasgow,  to  be  lent  on  bills  and  securi- 
ties. No  sooner  did  the  alarm  commence  than  the 
local  depositors  in  the  Western  Bank  and  other  banks 
began  to  demand  the  immediate  repayment  of  their 
deposits.  It  was  out  of  the  power  of  the  bank,  though 
its  shareholders  were  among  the  richest  people  in  Scot- 
land and  the  liability  was  unlimited,  to  meet  this  sud- 
den rush;  the  directors  could  not  get  the  assistance  they 
asked  for,  and  down  came  the  bank,  to  the  utter  ruin 
of  many  at  the  moment,  and  to  the  serious  injury  of 
the  whole  countiy  for  a  long  time. 

On  the  occurrence  of  a  succession  of  bankruptcies, 
the  Bank  of  England  found  itself  exposed  to  a  drain 
of  its  gold  to  Scotland,  Ireland,  and  America,  which 
rushed  its  rate  of  discount  up  in  hot  haste  from  6  per 
cent,  on  the  8th  of  October  to  8  per  cent,  on  the  19th, 
to  9  per  cent,  on  the  5th  of  November,  10  per  cent,  on 
the  10th,  and  12  per  cent,  on  the  18th.  On  the  11th 
of  November  the  banking  department  was  reduced  to 
£1,462,153,  and  its  securities  held  against  advances 
amounted  to  £26,113,453.  On  the  18th  its  reserve 
fund  stood  at  £1,552,686,  and  the  securities  at  over 
£30,000,000.  The  universal  panic  which  set  in  at  this 
juncture  it  is  needless  to  describe.  All  the  now 
familiar  features  were  reproduced  on  a  larger  scale  than 
ever.  Money  seemed  likely  to  become  unattainable 
at  any  price,  and  ruin  stared  even  wealthy  firms  in 
the  face.  It  is  said  that  the  great  firm  of  Overend, 
Gurney,  &  Co.,  of  whom  more  will  be  heard  later  on, 
threatened  failure  on  their  own  part  unless  some  steps 
were  at  once  taken  to  give  them  immediate  accom- 
modation.    Such  a  failure  at  such  a  time  would  have 


8o  COMMERCIAL  CRISES  OF 


involved  ruin  to  so  many,  and  would  have  brought 
about  such  widespread  tciror,  that  the  Governor  and 
Dircctois  prayed  the  Government  to  suspend  the 
Bank  Act  of  1844,  and  permit  the  issue  of  bank-notes 
in  excess  of  the  amount  of  bullion  to  support  them. 
This  was  permitted  on  the  evening  of  November  12tli 
on  condition  that  the  bank  rate  was  maintained  at  10 
per  cent.  An  over-issue  of  £1,000,000  followed,  and 
in  spite  of  all  gloomy  forecasts,  the  financial  situation 
at  once  began  to  improve.  Thus,  for  the  second  time 
since  its  enactment  thirteen  years  before,  had  the 
Bank  Act  of  1844  to  be  suspended,  and  Government 
securities  to  be  transferred  from  the  banking  to  the 
issue  department  of  the  Bank  of  England,  in  order  to 
forestall  a  total  collapse  of  credit. 

But  the  great  crisis  of  1857  still  lingers  in  the 
memory  of  those  who  lived  through  it.  The  numerous 
houses  which  failed  just  before  the  suspension  of  the 
Bank  Act,  felt  that  in  some  way  they  had  been  very 
hardly  treated ;  while  those  which  survived  had,  like 
the  greatest  of  all,  undergone  a  shake  that  seriously 
imperilled  and  in  some  cases  eventually  wrecked 
them.  Such  is  the  insecurity  of  this  system  of  pro- 
duction based  upon  the  constant  antagonism  between 
gold  and  commodities,  this  system  of  credit  based 
upon  anticipation  of  profits,  this  system  of  banking 
based  on  lending  deposits  made  at  a  low  rate  of  in- 
terest at  a  higher  rate  of  interest.  And  such  is  the 
futility  of  attempting  to  reconcile  the  antagonism 
which  lies  still  deeper  in  this  our  modern  society,  and 
of  which  all  the  rest  is  but  an  excrescence,  by  tinker- 
ing with  a  Bank  Act.     Palliatives  of  such  a  system 


THE  NINE  TEE  NTH  CENTUR  V.  8 1 

there  may  be,  but  remedy  without  complete  trans- 
formation there  is  none.  So  long  as  companies  carry  out 
great  public  works  for  private  profit,  and  the  necessary 
goods  for  society  are  produced  solely  for  individual  gain? 
so  long  will  such  ups  and  downs  periodically  recur. 

Again  for  the  fourth  time  in  the  century  was  the 
incapacity  of  the  capitalist  class  to  handle  the  grow- 
ing powers  of  man  over  Nature  to  the  advantage  of 
society  clearly  exliibitcd.  For  the  failure  of  banks 
and  mercantile  houses  involved  the  discharge  and 
starvation  of  workpeople,  who  for  the  fourth  time  in 
about  forty  years  witnessed  the  very  wealth  which 
they  created  rise  up  before  them  as  a  monster,  dooming 
them  to  wretchedness  for  a  time  at  any  rate.  In 
Staffordshire  the  failure  of  a  bank  stopped  work  in 
the  potteries,  and  threw  30,000  workers  out.  In 
Northumberland  the  failure  of  another  bank  brought 
collieries  and  iron-works  to  a  standstill.  "  The  mis- 
chief by  no  means  stopped  short  at  the  handful  of 
speculators  and  merchants  at  the  great  trading  and 
shipping  ports;,  but  extended  to  the  manufacturers 
whose  establishments  were  brought  to  a  standstill  for 
lack  of  orders,  while  the  value  of  their  warehoused 
goods  constantly  diminished — extended  to  the  carry- 
ing trade,  since  the  foreign  trade  was  in  utter  stag- 
nation— extended  to  thousands  of  workers  who  were 
thrown  out  of  work — extended  even  to  the  shop- 
keepers whose  business  was  curtailed  owing  to  the 
greater  thriftiness  of  their  customers."  In  short 
anarchy  had  full  swing  in  our  industrial  order,  and 
the  organisers  of  industry  threw  the  whole  business 
machine  out  of  gear. 


82  COMMERCIAL  CRISES  OF 

"  In  the  cotton  factories  the  depreciation  could  not 
be  put  at  less  than  £500,000,  and  in  the  woollen  and 
silk  manufactures,  on  account  of  the  costly  nature  of 
their  machines,  it  can  be  reckoned  at  no  smaller 
amount.  The  last  factory  reports  of  April,  1850,  gave 
the  total  of  persons  employed  in  the  cotton  mills  at 
370,000,  and  in  October,  1857,  in  consequence  of  the 
increased  production,  the  number  may  be  taken  at 
390,000,  who  received  an  average  weekly  wage  of 
10s.  Gd.  per  head.  During  the  last  three  months  of 
the  year  1857,  the  working-hours  throughout  this 
entire  district  did  not  exceed  36  hours  a  week,  which 
involved  a  loss  of  £1,064,000  in  wages,  to  which  must 
be  added  close  on  £500,000  lost  through  the  decrease 
in  the  iron  trade,  in  the  consumption  of  coal,  oil,  and 
other  materials,  as  well  as  what  was  lost  by  the  stag- 
nation in  the  retail  trade.  The  loss  to  the  woollen 
and  silk  workers  was  probably  still  greater,  since, 
although  this  industry  employed  fewer  hands,  far 
more  hands  employed  were  deprived  of  the  means  of 
earning  their  bread.  The  condition  of  the  iron  dis- 
tricts was  no  better.  The  Staff ordsl are  Advertiser 
published  a  list  of  69  blast  furnaces  which  ordinarily 
gave  employment  to  28,000  persons  in  these  districts. 
On  the  31st  of  December  they  were  all  out  of  work. 
On  the  same  day  there  were  41  blast  furnaces  blown 
out  in  Scotland,  and  16,000  workmen  discharged.  In 
South  Wales,  wliere  the  mining  industry  was  carried 
on  as  actively  as  in  the  above-named  districts,  a  third 
of  the  blast  furnaces  were  shut  door,  wasres  were  re- 
duced  20  per  cent.,  and  numerous  strikes  of  the 
miners   took    place ;  while    the  closing  of   works   in 


THE  NINETEENTH  CENTURY.  83 

Yorkshire  and  Durham  diminished  the  wages  paid  in 
these  counties  by  £5000  a  week.  Local  newspapers 
in  every  part  of  the  country  present  the  same  picture. 
In  Birmingham  orders  were  so  scarce  that  the  work- 
men  were  not  employed  more  than  two  or  three  days 
in  the  week.  In  one  region  the  employers  discharged 
part  of  their  workers,  in  another  short  time,  that  is  a 
few  days  a  week,  was  worked.  Public  meetings  of 
workers  were  held  to  devise  means  for  alleviating 
the  distress,  soup  kitchens  were  set  on  foot,  the  people 
were  set  to  work  on  the  public  roads,  and  a  vast  mass 
of  folk  were  relieved  outside  the  work-houses.  The 
Poor  Law  Reports  show  a  significant  increase  of  the 
poor  relieved."     (Max  Wirth.) 

It  was  the  same  story  everywhere.  Even  the  heavy 
fall  in  prices  could  not  tempt  buyers,  though  between 
the  beginning  of  September  and  the  beginning  of 
December  Scotch  pig-iron  fell  from  84s.  to  48s.  a  ton, 
tin  from  £140  to  £114  a  ton,  cotton  twist  18  to  24 
per  cent.,  silk  31  per  cent.,  cotton  33  per  cent.,  hides 
30  to  37  per  cent.,  wool  16  per  cent.,  sugar  20  to  28  per 
cent., coffee  16  to  23  per  cent.,  tea  16  per  cent.  The  exports 
fell  off  in  the  months  of  November  and  December 
£5,000,000.  At  the  same  time  the  fall  in  nearly  all  sorts 
of  securities  was  phenomenal.  Yet  gold  was  still  coming 
from  California  and  Australia  in  constantly  increasing 
quantities  ;  the  import  of  gold  into  England  alone  from 
these  two  countries  being  upwards  of  £22,500,000  in 
this  very  year  1857.  Needless  to  add  that  the  power 
of  production  and  distribution,  owing  to  the  great  and 
continuous  improvement  in  machinery  and  means  of 
transport,  was  even  greater  than  it  had  been  during 


COMMERCIAL  CRISES  OF 


the  years  of  the  highest  prosperity.  The  liquidation 
of  course  showed  that  credit  had  been  carried  to  a 
luoiistrous  excess,  and  that  firms  with  a  capital  of 
£10,000  failed  with  actual  liabilities  of  ten  and  twenty 
times  that  amount.  But  the  question  remains  to  this 
day  unanswered  by  the  orthodox  economists  and  their 
successors :  Why  this  inflation  yesterday  ?  Why 
this  stagnation  to-day  ?  Why  this  excess  of  exports 
last  year  ?  Why  this  diminution  this  ?  Why  are  the 
workers  in  full  employment  this  w^eek  ?  Why  are 
they  workless  and  hopeless  the  next  ? 

That  the  answers  should  never  have  been  correctly 
given  by  them  is  the  more  surprising,  since  the  crisis 
of  1857  affected  far  more  seriously  and  obviously  than 
either  of  the  preceding  crises  every  country  in  the 
civilised  world.  Thus  Fiance,  which  by  the  revolution 
of  1848  had  given  an  impulse  to  political  agitation 
and  social  discontent  throughout  Europe,  in  the 
intervening  nine  years,  entered  into  the  whirlpool  of 
international  capitalism  and  credit  to  an  extent 
which  she  never  had  before.  Marx's  predictions  in 
his  masterly  pamphlet  entitled  "XVIII  Brumaire"  were 
fulfilled  to  the  letter.  The  French  bourgeoisie  had 
triumphed,  first  in  the  establishment  by  wholesale  blood- 
shed of  the  middle-class  republic,  and  then  in  the  estab- 
lishment of  the  empire  by  the  cold-blooded  massacre  of 
December  2nd,  1851.  The  stagnation  and  distrust 
which  had  set  in  with  the  year  1848  and  had  since 
continued  now  gave  place  to  complete  restoration  of 
confidence  and  credit  auiong  the  classes  in  possession. 
The  rate  of  discount  fell,  the  interest  on  State  loans 
was  reduced,  and  everything  was  made  ready  for  that 


THE  NINETEENTH  CENTUR  Y.  85 


great  development  of  industries,  railways,  banks, 
credit  establishments  and  general  speculation  which 
completely  changed  the  general  character  of  French 
business. 

Hitherto  the  French  people,  the  great  majority  of 
whom  were  hard-workino-  stiuGfy,  frugal  agriculturists, 
had  conducted  their  affairs  with  the  greatest  caution 
and  prudence.  Speculation  had  been  restricted  within 
the  narrowest  bounds.  The  object  of  tlie  Imperial 
coterie,  as  well  as  of  the  men  of  business  immediately 
interested,  was  to  change  this.  To  give  the  workers 
plenty  of  work,  and  the  middle -class  plenty  of  business 
and  profit,  was  the  best  way  to  bring  about  forgetful- 
ness  of  the  past  and  to  establish  confidence  for  the 
future.  The  Bank  of  Finance,  an  institution  of  the 
soundest  character,  managed  under  State  control  on 
the  most  cautious  and  conservative  lines,  was  soon 
surrounded  by  institutions  of  a  very  different  char- 
actor,  and  that  influence  of  the  corrupt  and  greedy 
German  Jews,  whom  M.  Drumont  and  others  have  of 
late  so  bitterly,  but  not  unjustly,  denounced,  was 
firmly  established  in  Paris  under  the  special  patronage 
of  the  Emperor's  most  intimate  associates,  Morny  and 
Persigny.  In  view  of  what  has  occurred  since  1870, 
the  rascalities  of  the  Emperor's  entourage  seem  less 
abominable,  comparatively,  than  they  did  at  the  time  ; 
and,  at  any  rate,  they  were,  like  other  financial 
rogueries,  a  mere  embroidery  upon  the  main  sub- 
stance of  capitalistic  chicane.  Such  institutions  as 
the  Credit  Mobilier  and  the  Credit  Foncier  had  powers 
far  exceeding  those  of  any  ordinary  bank  or  credit 
establishment.     They  necessarily  were  the  outcome  of 


86  COMMERCIAL  CRISES  OF 

an  expansion  of  the  system  of  loans  and  credit,  and 
themselves  pushed  to  an  extreme  the  tendency  of 
which  they  were  the  result. 

The  idea  at  the  time  was  that  they  were  in  nowise 
subject  to  the  influence  of  political  or  financial  crises 
as  even  the  Bank  of  France  necessarily  was,  and  they 
started  off  on  their  career  of  fostering  the  industries 
and  increasing  the  development  of  France  with  an 
amount  of  success  which  justified  their  foundation. 
Their  means  for  carrying  out  their  operations  of  found- 
ing industrial  undertakings,  of  selling  and  bujung 
all  sorts  of  enterprises  and  their  shares  by  the  issue 
of  their  own  shares,  and  for  conducting  banking  busi- 
ness of  every  description,  were  the  paid-up  capital  of 
£2,400,000,  the  issue  of  bonds,  and  their  deposits  and 
current  accounts.  This  Credit  Mobilier  paid  10  per 
cent,  the  first  year,  1853 ;  13  per  cent,  in  1854  ;  47  per 
cent,  in  1855 ;  24  per  cent,  in  185G — and  then  came 
the  crash.  During  the  interval  vast  sums  were  in- 
vested in  France  in  railways,  and  numbers  of  great 
industrial  companies  were  formed  to  carry  out  every 
sort  of  business,  and  that  rebuilding  of  Paris  was 
begun  which  entirely  changed  the  appearance  of  the 
city  at  the  cost  of  millions  sterling.  On  French  rail- 
ways £20,000,000  were  spent  in  1855  and  £21,000,000 
in  1856.  For  France,  like  England,  sufiered  com- 
paratively little  from  the  Crimean  War,  to  all  appear- 
ance, while  it  lasted.  Over  1,100  miles  of  railroad 
had  been  built,  and  in  addition  to  the  war  loans  and 
expenditure  on  the  development  of  home  industry, 
millions  sterling  had  been  lent  to  foreigners.  When, 
therefore,  the  crash  came  in  England,  France  followed 


THE  NINETEENTH  CENTURY.  87 

on  the  same  line,  and  Paris  and  the  other  great  French 
cities  felt  that  stagnation  of  trade,  that  discharge  of 
workmen,  that  general  glut  of  commodities  which  had 
already  manifested  themselves  in  England  and  the 
United  States. 

But  precisely  the  same  phenomena  were  exhibited 
in  Germany,  in  Prussia,  in  Austria,  in  Belgium,  in 
Italy,  and  even  in  Scandinavia.  No  country  escaped 
from  this  new  form  of  epidemic.  For  in  each  and  all, 
according  to  their  degrees,  the  development  of  industry 
had  favoured  the  growth  of  banks  and  credit  estab- 
lishments, and  again  the  foundation  and  growth  of 
these  credit  establishments  had  unduly  enhanced  pro- 
duction viewed  from  the  standpoint  of  profit-making. 
The  shrinkage  of  prices  which  now  occurred  in  one 
market  was  felt  in  all.  Manufacturers  who  had  been 
turning  out  goods  on  one  level  of  values  had  suddenly 
to  accommodate  themselves  to  another  and  lower  scale. 
The  crisis  was  only  more  noteworthy  in  Hamburg 
than  in  other  German  cities,  because  Hamburg,  like 
Liverpool,  was  more  closely  connected  with  the 
American  trade.  The  silver  mining  countries  were 
no  more  exempt  from  the  consequences  of  the  uni- 
versal overtrading  and  undue  development  of  credit 
than  were  those  which  had  a  gold  standard.  From 
Europe  the  effects  of  the  crisis  spread  even  to  Asia. 
India,  and  China,  as  well  as  the  Australian  colonies, 
and  South  America,  underwent  a  period  of  bad  trade 
by  reason  of  the  disturbance  at  the  centre  of  the  com- 
mercial system  of  the  world. 

In  all  the  European  countries  and  in  America  the 
same  results  were  observable.  Republic,  constitutional 


COMMERCIAL  CRISES  OF 


monarchy,  or  despotism,  all  suffered  alike.  Forms  of 
government,  banking  systems,  silver  or  gold  standard 
were  equally  of  no  avail  against  the  industrial  crisis. 
Lack  of  currency  could  not  be  urged  as  a  reason  for 
dull  times,  when  millions  of  gold  a  month  were  com- 
ing forward  to  be  minted.  Insufficient  facilities  of 
credit  could  not  be  claimed  as  the  cause  of  the  mis- 
chief, when  banks  and  discount  houses  were  wildly 
competing  for  mercantile  bills.  Deficient  transport 
and  means  of  communication  could  no  longer  be 
pointed  to  as  the  manifest  occasion  of  a  local  glut. 
The  civilised  world  could  produce  more  wealth  with 
less  labour  than  ever  before,  and  still  society  in  1857, 
as  in  the  three  previous  decades,  had  been  over- 
mastered by  its  own  productive  forces  and  compelled 
to  go  into  liquidation  for  a  time. 

It  is  this  which  lends  special  significance  to  the  crisis 
of  1857,  that  even  a  superficial  analysis  of  the  circum- 
stances leads  to  the  elimination  of  currency,  of  bank- 
ing, of  credit  merely  as  credit,  of  political  forms,  of 
lack  of  agricultural  land,  of  protection  or  free  trade, 
as  the  primary  cause  of  crisis.  An  examination  of 
these  various  points  and  their  bearing  upon  industrial 
crises,  their  extension,  their  restriction,  their  palliation, 
cannot  but  be  interesting ;  but  the  real  solution  of  the 
difficulty  lies  none  the  less  in  the  theories  set  forth  in 
tlie  introduction  to  this  volume. 


THE  NINETEENTH  CENTURA.  89 


CHAPTER  VI. 

THE    CRISIS    OF     18GG. 

It  is  no  easy  matter  for  a  society  accustomed  to  cer- 
tain definite  arrangements,  especially  when  those  ar- 
rangements deal  with  such  apparently  complicated 
matters  as  currenc}^  banking,  bills  of  exchange,  and 
the  like,  to  understand  how  the  present  system  has 
grown  up  or  upon  what  it  is  really  based.  So  natural 
to-day  is  it  for  all  the  well-to-do  classes  of  this  country 
to  deposit  their  savings  in  a  bank  and  to  have  an 
account  there,  that  they  can  scarcely  believe  that  in 
France,  with  all  its  civilisation,  such  a  proceeding  is 
even  now  the  exception  rather  than  the  rule.  Banks, 
in  fact,  w^ere  not  originally  established  to  take  de- 
posits, and  if  they  had  been  they  would  not  have  got 
them.  The  Italian  banks  of  the  Middle  Ages  were 
established  in  order  to  make  loans  to  the  various 
Governments  of  the  cities  ;  the  banks  of  Northern 
Europe  were  all  set  on  foot  to  maintain  an  uniform 
currency  with  which  to  pay  bills  of  exchange  in  good 
money ;  receiving  the  bad  and  debased  coin  at  its 
intrinsic  value,  and,  after  making  certain  charges, 
crediting  the  merchant  wdio  thus  transmuted  his 
bad  coin  into  good  with  the  balance  in  the  books  of 
the  bank.  In  the  same  way  banks  acted  as  the 
transmitters  of  payments  for  goods  to  long  distances. 


90  COMMERCIAL  CRISES  OF 

Out  of  these  necessities  and  the  conveniences  which 
they  engendered,  the  hanking  system  arose  and 
was  maintained.  And,  so  soon  as  this  banking 
system  grew  and  extended,  international  trade  began 
to  assume  its  modern  aspect ;  for  the  goods  which 
were  exchanged  were  estimated  for  the  purpose  of 
such,  exchange  in  gold  or  silver,  and  thus  slowly 
the  wider  international  price  was  substituted  for  the 
fluctuating  price  of  the  local  markets. 

By  degrees,  therefore,  these  banks,  whether  origin- 
ating in  the  ways  above-named  or  as  goldsmiths  and 
pawnbrokers,  developed  into  the  huge  joint-stock 
shareholders'  banks  of  to-day.  Private  banks  having 
been  entrusted  with  remittances  and  bank  money,  or  the 
money  necessary  to  meet  bills  of  exchange,  were  next 
entrusted  with  plate  and  funds  deposited  at  call.  To 
lend  this  would,  at  first,  have  been  regarded  as  to  the 
full  as  dishonest  and  dangerous  as  it  would  be  to-day 
fur  a  banker  to  borrow  on  his  client's  securities. 
But  gradually  this,  too,  came  to  be  a  portion  of  the 
banker's  business  in  addition  to  his  other  businesses  : 
to  receive  deposits  of  money  for  safe  custody  from  his 
clients,  and  to  lend  out,  what  was  learnt  by  experience 
to  be  a  safe  proportion  of  such  deposits  on  the  open 
market  by  discounting  mercantile  bills  for  other 
clients,  or  by  lending  upon  securities  realisable  upon 
the  market  on  arranged  terms. 

But  the  extension  of  the  banker's  business  in  this 
direction  tended  rapidly  to  diminish  the  relative  im- 
portance of  his  other  business.  Receiving  money  on 
deposit  and  lending  it  out  again  at  a  profit  became  so 
large   a  part   of  the  banker's  daily  business  that  a 


THE  NINETEENTH  CENTURY.  91 

banker  only  considered  that  he  entered  fully  upon  his 
functions  while  he  was  doing  this.  Business  with 
him  is  literally  an  affair  of  other  people's  money  :  his 
own  capital  being  only  a  sort  of  security  for  the 
proper  conduct  of  the  business,  and  a  reserve  in  case 
of  a  run  or  of  a  period  of  continuous  lack  of  con- 
tidence.  But  as  savings  greatly  increased,  and  the 
profits  to  be  gained  by  receiving  them  on  deposit  and 
lending  the  deposits  out  at  interest  became  apparent, 
competition  for  them  steadily  grew.  So  profitable  a 
branch  of  banking  could  not  be  left  entirely  in  the 
hands  of  the  old  private  bankers.  Joint-stock  banks 
were  formed  with  great  capitals,  and,  whereas  the 
private  bankers  paid  no  interest  and  demanded  that  a 
balance  of  a  stipulated  amount  should  be  kept,  the 
new  institutions  all  pay  interest  on  deposits  having 
stated  terms  of  withdrawal — the  rate  of  such  interest 
being  governed  by  the  rate  of  discount  exacted  by  the 
Bank  of  England ;  though  they  speedily  surpassed 
that  institution  in  the  magnitude  of  their  total  and 
soon  of  even  their  separate  operations,  in  spite  of 
their  having  no  issue  of  notes. 

At  the  same  time  with  these  great  joint-stock  banks 
there  grew  up  a  whole  series  of  discount  houses  and 
bill-brokers,  in  addition,  to  the  large  mercantile  and 
accepting  houses  whose  bills  had  to  be  dealt  with. 
It  was  and  is  the  business  of  these  establishments  to 
deal  specially  in  bills  with  their  own  and  partly  with 
others'  capital,  rediscounting  the  bills  at  a  very  small 
profit  with  the  great  joint-stock  banks.  It  is  in  no 
sense  the  business  either  of  the  banks  or  of  the  dis- 
count houses  or  of  the  bill-brokerSj  to  foster  trade  or 


^2  COMMERCIAL  CRISES  OF 

to  develop  new  enterprises.  They,  in  theory,  deal 
only  with  the  results  of  improved  industrial  condi- 
tions and  the  increased  trade  which  springs  from 
them.  But  in  practice,  as  we  have  seen,  the  facilities 
given  in  times  of  inflation  and  high  prices  have  the 
effect  of  enhancing  both  the  one  and  the  other.  In 
some  cases,  means  were  found  to  start  new  enterprises 
by  these  financial  firms  tliemselves,  and  the  circle  of 
finance  was  thus  not  merely  indirectly  but  directly 
involved  in  the  risks  of  promotion  ;  in  the  same  way 
that  many  of  the  American  banks  and  the  great  French 
Credit  Companies  were  involved.  If  certain  enter- 
prises of  a  risky  description  required  to  be  financed, 
tliat  is  to  say,  if  labour  and  capital  are  ordered  to  be 
expended  on  undertakings  which  might  never  derive 
benefit  from  the  community  nor  the  community  from 
them,  and  if  the  money  to  pay  the  labourers  and  to 
furnish  the  plant  is  advanced  upon  the  shares  of  a 
Company,  supplemented  by  its  probably  worthless 
bills,  it  is  clear  that  when  the  inevitable  craslr  comes 
it  will  take  the  sha])e  of  a  financial  crisis  in  the  first 
instance,  however  clearly  the  failure  is  d-ue  to  indus- 
trial causes  at  bottom.  All  this  is  simple  enougli. 
But  so  much  stress  is  laid  upon  the  details  and  com- 
plications of  banking  and  finance  that  at  periods  of 
crisis  men  habitually  talk  as  if  the  mischief  lay 
wholly  in  the  financial  arrangements,  and  that  the 
mechanical  improvement  of  these  arrangements  would 
put  everything  right.  And  these  remarks  specially 
apply  to  the  crisis  now  about  to  be  considered. 

The  great  crash  of  1857  was  not  very  speedily  re- 
covered from  either  in  Great  Britain  or  on  the  Con- 


THE  NINETEENTH  CENTUR  K  93 

tinent ;  while  even  the  United  States,  with  their 
illimitable  agricultural  resources,  suffered  for  some 
time  from  the  stagnation,  depression,  and  utter  lack  of 
confidence  which  followed  upon  the  more  acute  stages 
of  the  panic.  Scarcely,  indeed,  had  trade  begun  to 
resume  its  upward  movements  across  the  Atlantic, 
than  the  terrible  Civil  War,  which  originated  in  the 
slavery  still  prevalent  in  the  Southern  States,  broke 
out.  The  war  entailed  terrib^p  sacrifices  on  both 
sides,  but  the  North  being  far  richer  to  start  with,  and 
receiving,  in  spite  of  the  civil  struggle,  crowds  of  im- 
migrants each  year,  was  certain  to  win  in  the  long  run. 
Being  also  preponderant  at  sea,  the  Northern  navy  was 
able  to  prevent  the  South  from  getting  that  support 
from  Europe  which  might  have  been  obtained  from 
the  sale  of  cotton  and  other  slave-grown  products. 
This  inflicted  a  terrible. blow  upon  Great  Britain, 
where  also  the  effects  of  the  great  panic  of  1857  had 
only  just  worn  off  when  the  war  begun  in  1861 ;  and 
the  commercial  treaty  with  France  concluded  in  the 
previous  year  was  a  trifling  make-weight  against  the 
depreciation  of  the  raw  material  for  the  Lancashire 
cotton  mills.  There  were,  however,  to  the  country 
at  large,  compensations  in  the  general  circumstances 
of  the  time  for  the  calamity  which  fell  so  heavily 
upon  the  workpeople  and  manufacturers  of  Lan- 
cashire, nor  can  it  be  denied  that  over-production  had 
produced  glut  before.  For  the  war  itself  occasioned 
a  demand  for  English  goods  up  to  a  certain  point,  the 
Limited  Liability  Act  of  1862  gave  a  great  impulse 
to  new  ventures,  and  a  supjoly  of  cotton  from  Egypt 
and  India  in  that  and  successive  years  made  amends 


S' 


94  COMMERCIAL  CRISES  OF 

ill  some  degree  for  the  loss  of  the  superior  American 
staple. 

That  there  was  plenty  of  capital  seeking  invest- 
ment at  this  time  was  abundantly  shown  by  the 
enormous  sums  paid  into  new  companies,  and  the 
expenditure  in  the  course  of  a  few  years  on  railways 
of  £70,000,000.     The  close  of  the  American  War  in 

1865  gave  a  further  impulse  to  new  business,  which 
the  development  of  trade  with  China,  India,  and 
Australia  likewise  encouraged.  The  threatenings  of 
war  between  Prussia  and  Italy  on  the  one  side, 
against  Austria  on  the  other,  gave  as  little  ground 
for  uneasiness  in  Great  Britain  as  the  war  between 
France  and  Austria  had  given  in  1859.  For,  as  at  all 
such  periods,  a  neutral  power  in  the  position  of  Eng- 
land gained  both  in  the  demands  for  the  manufactures, 
and  in  the  extension  of  lier  already  enormous  carrying 
trade.  At  this  period,  too,  in  the  year  1865  that  is, 
the  total  amount  of  wealth  in  Great  Britain  was  put  at 
£6,100,000,000.  Of  course,  a  capitalised  value  of  this 
sort  is  in  many  respects  purely  imaginary,  as,  for  in- 
stance, the  capital  value  of  land  taken  at  a  given 
number  of  years'  purchase  of  its  rents ;  but  on  the 
same  basis  the  capitalised  value  in  1814  was  but 
£2,300,000,000,  or  little  more  than  one-third  of  the 
amount,  while  the  population  in  the  meantime  had 
increased  only  fifty  per  cent.  There  was  again, 
therefore,  nothing  in  the  extent  of  wealth  creation  to 
justify  an  anticipation  of  a  crash  in  1866,  nor  was 
there  any  great  evidence  of  inflation  at  the  time. 
Some  even  go  so  far  as  to  maintain  that  the  crisis  of 

1866  was  not  an  industrial  crisis  at  all,  and  it  is  true 


THE  NINETEENTH  CENTURY.  95 

that  the  ordinary  symptoms  of  crisis  were  not  ap- 
parent in  the  trade  returns.  But  it  is  quite  impos- 
sible that  the  downfall  of  a  single  house,  however 
powerful,  prepared  for  beforehand  as  it  had  been, 
could  have  given  such  a  shake  to  credit  and  brought 
about  as  it  did  a  stagnation  in  home  trade,  had  there 
not  been  a  good  deal  of  foolish  investment  and 
wild  speculation  in  the  years  immediately  pre- 
ceding. 

At  any  rate,  when  on  10th  May  the  great  house  of 
Overend,  Gurney  &  Co.  suddenly  stopped  payment, 
the  panic  occasioned  throughout  Great  Britain  was  to 
the  full  as  furious  and  unreasoning  for  the  time, 
though  happily  for  those  who  lived  through  it,  not  so 
disastrous  in  its  ultimate  effects,  as  the  panic  of  1857. 
The  firm  had  only  been  converted  into  a  Limited 
Company  the  year  before,  by  which  process  a  good 
deal  of  new  capital  was  introduced  into  the  business. 
They  were  at"  the  time  still  considered  by  the  world 
at  large  to  be  that  which  they  had  certainly  been  in 
1856,  if  not  in  1861 — the  most  powerful  firm,  as  well 
as  the  most  active  and  capably  managed  firm,  in  the 
city  of  London.  They  stood  next  to  the  Bank  of 
England,  and  their  name  and  influence  extended  to 
all  parts  of  the  civilised  globe.  Yet  during  the  very 
years  when  their  credit  stood  thus  high,  and  in  part 
for  years  before,  they  were  encouraging  and  embark- 
ing in  enterprises  of  a  character  which  were  so  un- 
sound in  themselves,  and  so  dangerous  from  the  class  of 
people  connected  with  them,  that  the  veriest  tyro  in 
finance  would  have  instinctively  shrunk  from  them, 
even   if   they   had   not   been   outside  of  the  special 


96  COMMERCIAL  CRISES  OF 

business  which  it  was  the  function  of  the  firm  to 
carry  on. 

Let  us  hear  the  late  Mr.  Bagehot  on  the  matter,  for, 
assuredly,  lie  could  not  be  accused  of  under-estimating 
the  ability  of  English  capitalists  :  "  The  partners  had 
great  estates  which  had  mostly  been  made  in  the 
business.  They  still  derive  an  immense  income  from 
it.  Yet  in  six  years  they  lost  all  their  own  wealth, 
sold  the  business  to  the  company,  and  then  lost  a 
large  part  of  the  company's  capital.  And  these  losses 
were  made  in  a  manner  so  reckless  and  so  foolish  that 
one  would  think  a  child  who  had  lent  money  in  the 
city  of  London  would  have  lent  it  better."  Yet  it 
was  in  the  power  of  these  sapient  nincompoops  to 
break  the  Bank  of  England,  to  occasion  such  a 
desperate  panic  throughout  the  country,  and  to  injure 
the  credit  of  Great  Britain  abroad  to  such  an  extent 
that  positively  the  Foreign  Secretary  at  the  time  was 
impelled  to  send  a  circular  to  all  our  ambassadors 
abroad,  in  order  to  assure  foreigners  that  the  bottom 
had  not  fallen  out  of  our  island — whose  total  wealth, 
according  to  Mr.  Robert  Giften,  then  -amounted  to 
£6,100,000,000. 

What  renders  the  whole  thing  more  mysterious  to 
those  who  do  not  look  below  the  surface,  and  more 
absurd  to  those  who  do,  is  the  fact  that  the  Bank  of 
England  had,  by  common  consent,  an  exceedingly 
good  reserve  when  Messrs.  Overend,  Gurney  &  Co.'s 
suspension  took  place — that  reserve  being  then,  as  it 
is  to-day,  the  only  real  reserve  retained  by  the  greatest 
commercial  city  to  carry  on  the  greatest  commercial 
transactions   for    the    international    business   of  the 


THE  NINETEENTH  CENTURY.  97 

world.     But  the  transactions  of  the  firm  of  Overend, 
Gurney  &  Co.  were  so  extensive,  bills  drawn  on  them 
had  such  universal  currency,  that  nobody  knew  what 
might  be  the  end  of  their  breakdown,   and   conse- 
quently, bankers,  bill-brokers,  merchants,  rushed  pell- 
mell  to  the  Bank  of  England  to  secure  to  themselves 
the  means  of  meeting  their  acceptances,  and  carrying 
on  their  business.      Cash  or  notes  were  alone  legal 
tender  in  discharge  of  debts,  and  those  who  wanted 
to  keep  their  heads  above  water,  as  the  tidal  wave  of 
general  distrust  swept  on,  were  compelled,  as  usual,  to 
obtain  advances  on  the  best  securities  they  could  get 
"  Ma  foi  j'ai  vecu,"  said  the  man  who  was  asked  what 
he  had  been  doing  during  the   French   Revolution. 
"  Ma  foi  j'ai  vecu,"  might  have  replied  many  a  man  of 
business  who  was  still  carrying  on  his  daily  round  of 
duty  a  few  days  after  that  memorable  10th  May,  186G. 
The  Bank  of  England  did  its  best  to  check  the 
panic,  and  advanced  £4,000,000  in  hot  haste  on  stocks, 
bills,  and  any  good  security.     But  all  to  no  purpose. 
The  banking  department  ran  down  to  £3,000,000,  and 
then,  for  the  third  time  in  two-and-twenty  years,  the 
Bank  Act  was  suspended,  relief  was  given  by  degrees, 
and  the  panic  rapidly  subsided. 

But  those  who  contend  that  this  was  merely  a 
currency  crisis  overlook  what  went  before,  and  that 
which  followed  after.  Overend,  Gurney  &  Co.'s 
failure  brought  down  with  it  many  smaller  firms. 
One  hundred  and  eighty  companies  were  wound  up  in 
a  few  months.  And  to  take  one  trade  only,  the 
cotton  trade,  not  until  1870  did  the  factories  of  Lan- 
cashire work  on  the  same  scale  as  they  had  worked 


COMMERCIAL  CRISES  OF 


ten  years  before  in  1860  ;  though  at  the  time  of  the 
crisis  a  perceptible  improvement  had  begun.  The 
same  phenomena  of  ghjt  and  stagnation  were  again 
to  be  noted,  and  tbe  consequences  to  English  credit 
on  the  Continent  have  already  been  spoken  of. 

It  is  a  singular  comment  on  this  Overend  &  Gurney 
crisis  of  1866  that  the  partner  in  the  firm  who  was 
more  than  any  other  responsible  for  their  ruin,  but 
who  retired  before  the  firm  was  converted  into  a 
Limited  Company,  should  only  just  (1891)  have  died 
worth  £1,000,000  in  personal  property  ! 


THE  NINETEENTH  CENTURY.  99 


CHAPTER  VII. 

THE    CRISIS    OF    1873. 

The  time  had  now  arrived  when  great  crises,  although 
they  may  begin  with  a  sudden  panic,  have  also 
harmful  and  enduring  effects  upon  industry  which 
extend  over  many  years,  and,  in  the  course  of  the  long 
series  of  liquidations  which  they  bring  about,  spread 
to  every  country,  touching  even  those  nations  that 
apparently  have  least  direct  mercantile  connection 
with  the  point  at  which  they  might  chance  to  origin- 
ate. With  the  increasing  complexity  of  international 
trade  and  financial  relations,  alike  under  Protection 
and  Free  Trade,  it  is  clear  that  stagnation  in  any  one 
region,  or  in  any  particular  industry,  must  make  it- 
self felt  sooner  or  later  in  all  others  more  or  less  ; 
seeing  that,  in  order  to  realise  profits,  exchange,  first 
of  commodities  for  gold  and  then  of  gold  for  other 
commodities,  must  go  steadily  and  uninterruptedly  for- 
ward. Such  a  country  as  the  United  States,  with  ifs 
enormous  territory  still  sparsely  peopled  and  in  part 
wholly  unoccupied,  with  its  great  variety  of  climate  and 
unprecedented  wealth,  alike  agricultural  and  mineral, 
may  endeavour  to  render  itself  independent  of  its 
neighbours  by  the  imposition  of  high  tariffs.  But  even 
in  this  case  the  nece  ssity  for  exporting  food  and  raw 
material  in  vast  quantities  involves  its^inhabitants 
more  and  more  in  the  ups  and  downs  of  Europe.  Hence 


COMMERCIAL  CRISES  OF 


the  low  price  of  grain  at  the  European  centres,  due  to 
such  a  cause  as  an  exceptionally  good  harvest  in 
India  or  Russia,  has  prevented  many  a  Western 
farmer  from  re-painting  his  farmhouse  and  barns,  has 
thus  reduced  the  demand  for  paint,  and  thus,  in  turn, 
has  lowered  the  price  of  lead  and  caused  the  shutting 
down  of  many  of  the  mines  of  the  Western  States. 
Hence,  again,  men  have  been  thrown  out  of  work  and 
into  distress  even  in  that  land  of  plenty  in  the  best  of 
good  seasons.  This  is  but  one  instance  out  of  many, 
which  is  not  rendered  less  sad  to  those  who  suffer 
by  the  fact  that  on  the  return  of  "  good  times  "  pros- 
perity reaches  a  greater  height  than  ever  before. 

The  crisis  of  1873,  though  it  did  not  begin  in  the 
United  States,  as  did  the  crisis  of  1857,  was,  like  that 
great  catastrophe,  largely  due  to  the  course  of  de- 
velopment in  that  countrj^  But,  taken  in  all,  it  had 
more  vaiious  causes,  it  spread  over  a  wider  range  and 
had  more  disastrous  consequences  than  any  of  the 
previous  crises.  Beginning  its  career  on  the  Bourse, 
it  successively  brought  down  in  sympathy  the  trade, 
industry,  and  eventually  the  agricultural  economy,  of 
the  entire  West.  It  commenced  first  of  all  in  Vienna 
at  the  commencement  of  the  month  of  May,  1873,  but 
the  consequences  of  the  crisis  endured  up  to  the 
autumn  of  1879,  and  directly  involved  the  whole  of 
Austria-Hungary,  the  German  Empire,  Italy  and 
Switzerland,  in  the  injurious  effects  of  its  complica- 
tions. The  crisis  broke  out  with  redoubled  force  in 
America,  and  brought  the  English,  Scandinavian,  and 
Russian  money-markets  as  well  as  the  industries  of 
France,  specially  devoted  to  the  production  of  luxur- 


THE  NINETEENTH  CENTURY. 


ies,  within  its  range,  though  the  latter  country  had 
been  prevented  by  the  misfortunes  of  the  war  from 
indulging  in  over-speculation.  The  shocks  of  the 
great  crash  were  felt  at  Belgrade,  and  Bucharest,  at 
Odessa,  Moscow,  and  Nijni  Novgorod,  at  Alexandria, 
and  in  South  America. 

Here  we  have  the  international  crisis  in  its  most 
complete  form,  and  lasting  in  a  more  or  less  injurious 
shape  for  upwards  of  six  years,  and  even  then  the 
recovery  was  shortlived  in  more  than  one  country. 
Yet,  during  the  sixteen  years  from  1857  to  1873,  the 
development  of  production  and  trade  had  again  sur- 
passed all  anticipations  even  of  the  most  sanguine.  And 
this  experience  was  not  confined  to  any  one  or  two 
countries.  Exports  and  imports  had  more  than  doubled 
in  the  United  Kingdom,  in  the  United  States,  in 
France,  in  Austria,  and  in  Belgium.  Railways,  steam- 
ships, telegraphic  cables  were  facilitating  transport 
and  rapidity -of  communication  in  a  progressive  ratio; 
the  improvement  in  the  production  of  iron  and  steel 
was  so  great  as  to  more  than  meet  the  increased  de- 
mands of  modern  society;  while  the  almost  unnoticed 
application  of  machinery  to  agricultural  purposes  in 
the  United  States  was  working  a  revolution  in  the 
production  of  food-stufls,  to  be  compared  only  with 
that  which  had  already  been  brought  about  in  the 
working  up  of  cotton,  wool,  etc.,  at  the  beginning  of 
the  century. 

The  most  terrible  wars  in  America  and  in  Evu'ope 
had  been  powerless  to  arrest  the  advance  more  than 
momentarily,  and  Great  Britain  actually  benefited  so 
much  by  the  war  between  Fiance  and  Germany  that 


COMMERCIAL  CRISES  OF 


]\Ir,  Gladstone,  shortly  afterwards,  used  his  often- 
repeated  phrase  about  prosperity  advancing"  by  leaps 
and  bounds."  It  is,  indeed,  needless  to  enlarge  upon 
the  constantly  multiplying  power  of  man  to  produce 
wealth.  ^Thfii  application  of  science  to  wealth-creation 
is  now  so  direct  and  immediate  that  the  difficulty  of 
at  once  adopting  new  inventions  and  discoveries 
arises  from  the  fact  that  in  many  branches  of  industry 
wages  are  so  low  that  it  is  cheaper  for  the  employer 
to  proceed  with  the  old  methods  than  to  introduce 
the  new.  But  even  this  hindrance  has  only  hindered 
not  checked  the  advance  all  along  the  line  ;  and,  as 
each  successive  period  passes  and  can  be  compared 
with  the  one  before,  we  see  clearly  that  for  every  per- 
son employed  in  industry  the  increased  production 
per  hour  actually  worked  has  again  been  multiplied 
many  times. 

The  war  of  1870,  with  its  fearful  waste  of  life  and 
material,  and  the  trade  losses  it  had  involved  to  the 
two  greatest  continental  powers,  occasioned  an  im- 
mediate demand  on  this  powerful  economical  machinery 
to  till  the  gap.  Even  the  tremendous  war  indemnity, 
which  was  intended  to  crush  France,  had  its  effect  in 
stimulating  the  remarkable  rebound  of  trade  which 
commenced  on  the  conclusion  of  peace.  For  France, 
with  a  power  of  recovery  wholly  unexpected,  set  to 
work  to  pay  her  vast  debt,  pile  up  fresh  accumulations, 
and  reorganise  her  army  and  navy  at  one  and  the 
same  time,  with  an  industrj?-  and  assiduity  which 
perhaps  no  other  nation  in  Europe  could  have  rivalled. 
The  Germans  on  their  side  used  the  £200,000,000 
of    indemnity   to   replace    their   material    and   refill 


THE  NINETEENTH  CENTURY.  103 

their  war  chest,  but  also  to  pay  off  the  various  State 
debts.  This  put  hirge  amounts  of  capital  at  the  dis- 
posal of  private  persons  who  naturally  wished  to  use 
them  to  a  profit  again.  It  is  scarcely  too  much  to  say, 
also,  that  the  moral  effects  of  the  astounding  victories 
of  the  Germans  over  the  French  and  the  reconstitution 
of  the  German  Empire  were  such  that  Germany  was 
filled  with  a  new  life,  and  felt  invigorated  to  an  extent 
never  experienced  since  the  wholesale  devastations  of 
the  Thirty  Years'  War.  Hence  followed  a  rush  into 
new  undertakings,  a  desire  to  extend  and  beautify 
the  principal  cities,  and  to  complete  the  railway  con- 
nections between  the  various  parts  of  the  new  Empire, 
for  but  a  fraction  of  which  enterprises  the  French 
indemnity  could  provide  the  funds. 

Though,  however,  some  of  the  chief  causes  of  the 
crisis  lay  in  the  German  Empire,  Vienna,  as  already 
stated,  was  the  first  city  to  feel  its  effects.  Through- 
out Austria-Hungary  the  five  or  six  years  prior  to 
1873  had  been  years  of  the  most  extraordinary 
development  of  companies.  Railways,  coal  mines, 
iron  and  steel  works,  sugar  factories,  and  banks  were 
constructed,  organised,  and  started  one  after  the  other. 
In  Vienna,  in  the  year  1869,  the  total  of  such  enter- 
prises set  on  foot  reached  the  amount  of  u]) wards  of 
£80,000.000,  of  which  more  than  half  was  paid  up. 
In  Pesth,  no  fewer  than  91  companies,  with  a  gross 
capital  of  not  less  than  £27,000,000,  were  quoted  on 
the  Exchange.  In  short,  the  Austro-Hungarian  Em- 
pire was  for  the  first  time  gripped  completely  within 
the  circle  of  international  capitalist  finance,  and  the 
company  form  of  industry  supplanted  the  old  methods 


104  COMMERCIAL  CRISES  OF 

in  every  direction.     As  an  example  of  the  apparent 
prosperity  which  followed,  the  output  of  the  great 
breweries  increased  in  five  years  from  2,978,464  firkins 
to  5,433,904.     According  to  ofiicial  returns.  State  con- 
cessions were  granted  for  the  formation  of  1005  com- 
panies, with  a  nominal  capital  of  about  £300,000,000, 
most  of  which  were  supported  by  foreign  capital,  and 
for  their  mere  foundation  not  less  than  £100,000,000 
were  required  according  to  law.     There  were  thus  es- 
tablished 175  banks,  604  industrial  undertakings,  34 
railway  companies,  39  insurance  companies,  23  mining 
companies,  8  shipping  companies,  and  18  hotel  com- 
panies.    In    1866,  the  total   paid-up   capital   of   the 
banks  amounted  to  1 90  millions  of  gulden,  at  the  end 
of  1872  to  508  millions.     In  the  first  three  months  of 
1873,  15  new  banks  were  established,  with  a  ])aid-up 
capital  of  72  millions  of  gulden.     The  share  cap)ital 
invested  in  railways  nearly  doubled  in  the  same  time, 
while  the  preference  shares  nearly  trebled.     So  enor- 
mous was  the  amount  of  capital  subscribed  and  to  be 
expended,  that  if  all  the  enterprises  had  been  under- 
taken and  carried  on  there  would  not  have  been  nearly 
enough  skilled  workmen  in  the  country  to  complete 
the  works.     A  similar  state  of  things  was  to  be  found 
in  Germany.     In  the  year  1872  there  were  established 
in    Prussia   alone    banks,   building   societies,  mining 
companies,  railway  companies,  iron  works,  etc.  etc., 
with  a  capital  of  £76,000,000,  while  in  the  same  year  the 
total  issues  on  the  European  Stock  Exchanges  reached 
the  vast  figure  of  £500,000,000,  following  upon  similar 
issues  to  the  still  greater  amount  of  over  £600,000,000 
in  1871,  without  any  estimate  of  premiums. 


THE  NINETEENTH  CENTURY.  105 

lu  Prussia  259  companies  were  established  in  1871, 
and  504  in  1872,  as  against  34  in  1870  and  225  since 
the  beginning  of  the  century.  Even  in  the  first  six 
months  of  1873,  companies  and  loans  were  issued  in 
Europe  to  the  amount  of  fully  £300,000,000,  though 
the  crash  was  then  close  at  hand. 

These  figures,  and  many  more  might  be  given,  only 
express,  after  all,  the  truth  that  the  continent  of 
Europe  had  fully  entered  upon  that  period  of  whole- 
sale capitalistic  production  and  speculation  which  had 
alread}^  produced  such  disastrous  effects  on  countries 
economically  more  advanced.  What  made  matters 
even. worse  was  the  foundation  of  all  sorts  of  banking 
institutions,  which  had  little  else  than  stock-jobbing 
in  view.  The  real  object  of  banks  and  companies  was 
quite  lost  sight  of,  and  men  were  swept  into  the  whirl 
of  speculation  without  having  any  other  desire  than 
to  gamble  and  to  make  money  in  the  lottery  of  the 
share  market.  Mortgage  banks  and  building  societies 
gave  an  undue  impetus  to  building  speculations  in 
the  great  cities,  from  which  Berlin  and  Vienna  still 
suffer.  These  building  speculations  were  indeed 
among  the  most  unsound  and  ruinous  of  all  the 
business  of  the  time.  The  price  of  land  was  run  up 
to  a  purely  fictitious  level,  and  loans  were  made  to 
cover  the  sites  with  houses  to  an  extent  which,  when 
the  crash  came,  rendered  it  impossible  to  recover  even 
a  fraction  of  the  principal.  The  great  object  was  to 
run  up  the  houses  in  good,  or  what  were  likely  to  be 
good,  situations,  and  put  a  rental  upon  them  which, 
in  nine  cases  out  of  ten,  was  never  realised.  To  give 
an  adequate  account  of  this  building  mania  in  Berlin 


io6  COMMERCIAL  CRISES  OF 

and  Vienna  would  require  a  chapter  to  itself.  But 
similar  follies  can  be  seen  in  London  on  a  smaller 
proportional  scale,  and  the  speculative  builder  who, 
working  on  a  small  capital,  must  live  continuously 
from  Jiand  to  mouth,  borrowing  at  usurious  rates  to 
complete  jerry-built  structures,  is  well-known  here  at 
home. 

A  very  short  consideration  would  have  proved  to 
the  speculators  that  no  possible  increase  of  population 
could  justify  the  excessive  competition  for  building 
land  and  the  inordinate  sums  spent  in  erecting  houses 
upon  it.  But  at  such  times  nobody  reasons.  Each 
expects  that  the  good  times  will  last  until  he  is  able 
to  "  get  out "  at  a  profit,  and  what  the  result  may 
be  when  a  crash  does  come — that  is  a  matter  which 
can  be  attended  to  when  it  presses,  not  before.  What 
concerned  the  gamblers  for  the  moment  was  that 
building  plots  were  fetching  fully  ten  times  what  they 
were  unsaleable  at  a  few  years  before  ;  that  they  were 
able  to  borrow  on  their  purchases  up  to  the  hilt ;  and 
that  no  sooner  were  the  buildings  above  ground  than 
they  could  borrow  up  to  the  hilt  again.  'And  so  for 
the  time  the  building  companies  made  an  exceedingly 
good  showing  and  divided  up  large  sums  on  paper. 
During  the  same  period  railway  contractors  and 
speculators  such  as  Dr.  Strousberg,  who  at  this  time 
came  to  London  and  took  a  mansion  in  Grosvenor 
Place,  made  vast  fortunes  likewise  on  paper,  and  also 
constructed  railways  so  badly  that,  as  was  the  case 
with  more  than  one  firm  of  English  Contractors,  they 
obtained  so  infamous  a  name  for  their  fellow-con- 
tractors of  the  same  nationality  that  no  English  con- 


THE  NINETEENTH  CENTURY.  lo^ 

tractor  has  been  allowed  to  build  a  line  in  certain 
countries  since.  Adulteration  in  commodities,  jobbin^r 
and  jerry-building  in  contracts  and  house  construction, 
such  unfortunately  is  the  I'ule  in  days  of  high  prices 
and  prosperity  such  as  these  before  1873  appeared  to 
be.  The  swindling  and  corruption  which  accompanied 
the  procuring  of  the  concessions  in  Austria  and 
Germany  formed  a  fitting  preface  to  the  shameful 
scamping  which  followed  in  carrying  them  out. 
There  was  thus  quite  enough  inflation  in  the  German- 
speaking  countries  at  home  to  render  a  crisis  inevit- 
able, and  to  ensure  that  its  effects  should  be  disastrous; 
but  the  enormous  extent  to  which  Germans  of  all 
classes  had  invested  their  savings  in  American  rail- 
ways rendered  the  crash  more  calamitous  when  it 
came. 

Germany  and  Holland,  more  farseeing  than 
England  taken  as  a  whole,  and  better  informed  per- 
haps by  their  emigrants  as  to  the  prospects  of 
eventual  victory,  had  steadily  backed  the  North 
during  the  Civil  War,  and  had  continuously  purchased 
American  securities  at  low  prices  during  the  whole  of 
the  struggle.  When  the  fight  was  over  they  reaped 
their  reward,  and  their  successful  investments  in 
United  States  bonds  encouraged  them  to  take  up 
those  American  raihv^  securities  with  which  Europe 
was  now  flooded.  H^he  development  of  railways  in 
the  United  States  had  attained  a  height  quite  unpar- 
alleled in  Europe,  rapidly  as  railways  had  been  con- 
structed in  Great  Britain  and  elsewhere  to  meet  the 
necessities  of  increasing  trade.  In  America  railways 
were   really   the   only   permanent   roads    over    vast 


loS  COMMERCIAL  CRISES  OF 

stretches  of  territory,  and  it  was  by  this  means  alone 
that  the  great  cities  could  be  connected  together  and 
the  magnificent  far  West  opened  up  to  colonisation. 
The  United  States  had  therefore,  even  in  1870,  seven 
times  the  mileage  of  raihvayper  inhabitantto  thatwhich 
was  formed  by  Europe;  and  in  1870  the  Great  Republic 
had  fully  G0,000  miles  of  railway  completed  and  run- 
nings between  tlie  Canadian  State  line  and  the  Gulf. 
'^^4t!^as^a  period  of  marvellous  "  boom  "  in  West  and 
East  alike.  The  first  great  trans-continental  line  to 
San  Francisco  had  only  recently  been  completed,  and 
the  inhabitants  of  tliat  city  and  of  California  generally 
anticipated  that  the  development  of  the  Pacific  Slope 
would  rival  or  even  surpass  the  older  settlements  of  the 
Eastern  States.  The  farmers  of  the  West,  not  as  yet 
crushed  down  under  the  weight  of  mortgages  as  they 
too  often  are  to-day,  were  prospering  in  every  way, 
and,  unprecedented  though  the  expenditure  on  rail  ways 
had  been,  there  was  every  reason  to  believe  that  it 
would  fully  repay  the  investors  and  benefit  the  entire 
country.  Those  who  have  been  in  the  United  States 
at  such  times  know  the  sensation  of  general  well- 
being  and  universal  progress  which  is  felt  throughout 
the  country.  Nowhere  is  a  period  of  prosperity  more 
suddenly  and  surely  exhibited  in  the  lives  of  the 
people.  During  these  years  when  the  losses  by  the 
war  had  been  replaced  and  the  whole  nation  thought 
itself  on  the  full  flow  of  continuous  improvement, 
everybody  was  making  money  and  nearly  everybody 
was  spending  it.  Good  trade  in  one  quarter  made 
good  trade  in  another.  The  spread  of  luxury  even  in 
the  villages  of  the  far  West  was  something  astound- 


THE  NINETEENTH  CENTURY.  109 

ing.  Never  perhaps  in  the  history  of  the  United 
States  had  the  mass  of  the  people  been  so  well  off  as 
during  the  years  from  1869  to  1873. 

On  railways  alone  it  is  estimated  that  not  less  than 
£400,000,000  had  been  expended  since  1867,  of  which 
nearly  one-half  was  represented  by  mortgage  bonds. 
It  was  these  mortgage  bonds  at  low  prices,  with 
sometimes  an  accompanying  bonus  in  the  shares  of  the 
company,  which  tempted  the  European  investors  to 
invest  in  America  again,  as  they  realised  their  profits 
on  the  United  States  loans  bought  back  at  high  prices 
by  the  Americans  themselves.  All  this  marvellous 
well-being  for  the  many  and  fortune  for  the  few 
was  duly  reported  to  their  friends  and  relatives  at 
home  by  the  ten  millions  or  more  Germans  who  were 
now  settled  in  the  United  States.  For  the  Germans 
had  benefited  even  more  than  the  English  or  the 
Irish  by  the  settlement  of  the  great  West.  Small 
thrifty  farmers  or  tradesmen  at  home,  they  went 
out  to  the  United  States  with  a  little  capital, 
prejoared  to  rough  it,  and  to  devote  many  years 
of  their  life  to  building  up  a  happy  home 
for  themselves  and  a  moderate  competence  for 
their  children. 

The  great  through  lines  of  raihvay  which  were 
being  built  served  for  them  the  same  purpose  as  the 
great  rivers  had  served  before,  and  thrifty,  well-to-do 
German  colonies  were  to  be  found  pushing  on  steadily 
along  the  routes  of  the  main  railways  to  the  new 
unsettled  countries  which  had  not  yet  been  overrun. 
For  the  Germans  did  not  as  a  rule  linger  round  the 
cities  in  the  same  way  as  the  Irish,  nor  did  they 


no  COMMERCIAL  CRISES  OF 

meddle  much  with  politics  until  they  bad  made  their 
reasonable  competence,  or  until  their  own  individual 
interests  were  directly  affected.  But  now  these  men 
in  country-township,  town  and  city  alike,  were  getting 
rich,  not  slowly  but  fast.  Their  habits  of  life  and 
expenditure  were  below  the  scale  adopted  by  native 
Americans  or  English  when  they  are  successful,  and 
their  savings  were  proportionately  greater.  Wonder- 
ful accounts,  therefore,  they  sent  home  of  what  they 
were  doing,  and  it  is  not  too  much  to  say  that  the 
whole  middle-class  of  Germany  and  Austria  looked 
to  America  as  to  the  promised  land.  Those  who  w^ent 
put  themselves  and  their  capital  under  the  Stars  and 
Stripes ;  those  who  remained  and  could  do  so  in- 
vested their  savings  largely  in  the  bonds  of  those 
American  railways  which  were  to  bear  their  relatives 
to  the  regions  of  plenty.  The  process  went  on 
steadily,  and  this  German  exodus  contributed  even 
more  to  the  wealth  of  the  United  States  than  the 
Irish  colonisation,  of  which  so  much  more,  in  England 
at  any  rate,  has  been  heard.  The  injury  which  was 
thus  done  to  Germany  herself,  and  the  overwhelming 
competition  to  which  German  and  other  European 
agriculture  would  be  subjected  by  the  competition  of 
the  products  from  their  own  fellow-countrymen,  were 
not  at  first  fully  seen,  while  at  the  same  time  the 
pressure  of  the  Imperial  Government  drove  away 
across  the  Atlantic  many  Germans  who  could  ill  afford 
to  spend  even  their  passage  money.  Meanwhile  the 
American  railways,  with  their  enormous  land  grants 
from  Congress,  continued  to  attract  European  capital, 
and  among  others  two  great  new  trans-continental 


THE  NINE  TEE  NTH  CENTUR  V.  I H 

lines,  the  Northern  and   the  Soutbern  Pacific,  were 
talcen  in  hand. 

As  usual,  the  causes  of  the  crash  were  not  observed, 
nor  was  its  imminence  believed  in,  even  by  business 
men,  until  the  collapse  in  prices  and  the  helter-skelter 
rush  to  sell  had  well  begun.  Yet  all  the  symptoms 
of  crisis  were  well  exhibited  in  Austria  and  Germany 
for  some  time  beforehand.  A  glance  at  the  list  of 
enterprises  launched  in  those  countries  in  the  year 
1872  alone  is  sufficient  to  show  that  already  specula- 
tion and  excessive  construction  of  permanent  works, 
and  over-production,  as  it  is  called,  had  reached  their 
extreme  limit.  Prices  of  commodities,  of  shares  in 
good  enterprises,  of  land,  of  houses,  had  all  risen,  and 
wao"es  had  gone  up  in  at  least  an  equal  ratio,  attain- 
ing a  level,  in  America  more  especially,  higher  than 
anything  ever  reached  before.  At  the  same  time  the 
workers  in  every  country  were  constantly  on  strike, 
and  eflforts  were  being  made  to  obtain  better  condi- 
tions of  existence  and  shorter  hours  of  labour,  so  that 
the  wage-earners  might  in  turn  derive  some  benefit 
from  the  enormously  increased  power  to  create 
wealth. 

The  upward  sweep  of  luxurious  living  among  the 
well-to-do  kept  pace  with  the  rest  of  the  develop- 
ment. A  visitor  to  Berlin  or  Vienna,  who  had  known 
those  cities  well  before  the  great  changes  wrought  by 
the  recent  extension  of  capitalism,  could  not  fail  to 
be  struck  with  the  spread  of  luxury  and  display 
among  the  middle  and  upper  classes.  The  simplicity 
of  German  bourgeois  life  had  vanished.  Ostentation 
had  displaced   elegance,  and   domestic   comfort  had 


112  COMMERCIAL  CRISES  OF 

given  way  before  vulgar  profusion.      Nor  had  the 
people  benefited  in  the  same  degree  even  as  in  Great 
Britain.     The  overcrowding,  due  to  the  erection  of 
magnificent  palaces  where  labourers'   dwellings  had 
formerly  stood,   had   raised   rents   for   the    poor  for 
worse  accommodation  to  an  extent  that  could  only  be 
paralleled  in  London  or  New  York.     Wages  had  not 
advanced  in  proportion  to  the  dearness  of  living,  and 
the  right  of  combination  was  greatly  interfered  with. 
The  whole   industrial   growth   of   Austria  had   so 
concentrated    itself    in    companies,   credit   estaljlish- 
ments,  banks,  and  similar  institutions,  represented  by 
shares  in  the  Stock  Exchange,  which  were  dealt  in 
and   settled   for   day  by  day,  that   the   great   crisis 
which  began  in  Vienna  on  May  lOtli  took  at  first 
exclusively  the  form  of  a  Stock  Exchange  f)anic,  such 
as  might  be,  and  lately  was,  brought  about  at  the 
same  centre  by  a  war  scare.     It  was  even  supposed 
that  this  might  be  the  beginning  and  tlie  end  of  it. 
That  the  ))rices  of  shares  in  such  companies  had  been 
run  up  far  too  high  b}^  the  declaration  of  fictitious 
dividends,  by  assiduous  pufiing  in  the  parasite  press, 
and  by  the  usual  trickery  resorted  to  to  keep  stocks 
above  their  real  value,  was  freely  admitted  by  some 
German  financiers,  not  a  few  of  whom  regarded  the 
commencement  of  this,  as  it  proved,   overwhelming 
crisis  as  only  a  natural  and  wholesome  shrinkage  of  the 
price  of  shares  to  reasonable  dimensions.     Tliey  were 
soon  undeceived  as  to  the  magnitude  of  the  calamity 
which  had  befallen  the  whole  of  Central  Europe  and 
the  countries  with  which  their  recent  operations  had 
brought  them  most  directly  into  contact.     Even  the 


THE  NINE  TEE  NTH  CENTUR  Y.  113 

most  important  agricultural  industries  of  the  country, 
connected  as  they  were,  like  the  sugar  industry,  in  an 
increasing  degree  with  factories  managed  and  owned 
by  share  companies,  were  represented  by  shares  on 
the  Vienna  and  Berlin  Stock  Exchanges.  And  the 
gambling  in  all  these  shares  was  carried  on  upon  a 
scale  hitherto  quite  unprecedented  on  the  Continent. 
Creatures  of  finance  too  often  to  begin  with,  they  soon 
become  mere  playthings  of  the  stock  operator. 

At  the  end  of  April  the  Vienna  Bourse  was  already 
in  the  first  throes  of  the  panic,  and  herculean  efforts 
were  made  to  meet  the  threatened  catastrophe,  which 
also,  it  was  hoped,  would  be  in  some  strange  fashion 
conjured  away  by  the  opening  of  the  Exhibition  that 
was  arranged  for  the  1st  May.  Meetings  of  banks 
were  held  to  consider  if  any  steps  could  be  taken  to 
restore  confidence,  and  to  stem  what  was  still  regarded 
as  a  mere  fall  in  stocks.  But  the  evil  was  too  deep- 
seated  to  be  urrested  in  this  fashion.  Nothing  less 
than  the  temporary  unhinging  of  all  Austrian  finance, 
trade,  industry,  and  construction  of  public  works,  was 
inevitable.  Accordingly,  the  now  familiar  spectacle 
to  be  witnessed  during  every  really  serious  crisis  was 
displayed  to  the  world  for  the  first  time  on  the  banks 
of  the  Danube,  on  the  8th  and  9th  of  May,  1873. 
Panic,  chaos,  wild  despair,  hopeless  madness,  collapse 
of  confidence,  com})lete  crash  in  business — such  are 
the  words  used  by  e3^e-witnesses  to  describe  scenes 
which,  they  confess,  beggared  description. 

On  the  10th  May  things  were  at  their  worst.  Every 
effort  was  made  to  lessen  the  efifects  of  the  crash — a 
guarantee  fund  was  formed,  and  on  May  13th  the 

H 


114  COMMERCIAL  CRISES  OF 

National  Bank,  by  a  somewhat  similar  suspension  of 
the  law  to  that  which  the  failures  of  the  Bank  of 
England  have  accustomed  us  to  in  London,  was  en- 
abled to  come  in  some  degree  to  the  rescue,  and  save 
the  situation.  But  even  then  it  was  thought  that  the 
crisis  was  merely  a  crisis  in  stocks  and  shares,  and 
that  the  extension  to  trade  and  industry  could  be 
avoided.  But  by  this  time  all  Austria-Hungary  was 
in  the  whirl  of  the  crisis,  and  guarantee  funds  and 
committees  of  assistance  had  to  be  set  on  foot  in  all 
the  principal  towns.  By  degrees  the  more  acute 
superficial  symptoms  of  the  crisis  were  subdued  by  the 
various  remedies  employed,  but  the  cure  of  the  disease 
was  slow  and  the  recovery  greatly  prolonged. 

For,  of  course,  this  Vienna  crisis  was  essentially  an 
industrial,  trade,  and,  in  the  widest  sense,  financial 
crisis,  and  it  was  only  one  peculiar  feature  of  the 
case  that  it  should  have  manifested  itself,  to  begin 
with,  in  a  Stock  Exchange  form.  An  increase  in  the 
facilities  for  discounting  bills  or  lending  on  securities, 
an  inflation  of  the  currency,  might  give  relief  to 
genuine  traders,  and  prevent  a  complete-  stoppage  of 
the  necessary  exchanges,  but  all  remedies  of  this  kind 
cannot  possibly  replace  wasted  capital,  find  a  "market 
for  commodities  which  have  no  buyers,  or  jDay  inter- 
est on  repudiated  loans.  And  Austria-Hungary,  and 
then  America,  and  shortly  afterwards  Germany  and 
Holland,  had  to  face  all  these  difficulties,  and  slowly 
to  overcome  them  at  the  expense  of  great  sufiering 
and  poverty.  But  at  first  it  was  thought  in  England, 
in  America,  and  in  Germany,  as  it  had  been  in  Vienna, 
that   business  generally  was  quite  sound,  and  that 


THE  NINE  TEEN7H  CENTUR  V.  115 

little  more  would  be  heard  of  the  first  serious  crisis  in 
Eastern  Europe.  This,  too,  although  all  dealing  in 
fresh  American  issues  stopped  suddenly,  and  there  was 
a  great  and  general  fall  in  all  American  securities  in 
sympathy. 

But  similar  causes  to  those  which  operated  in  1857, 
and  to  a  less  degree  in  1869,  were  at  work  in  the 
United  States,  and  it  needed  but  a  slight  shock  from 
without  to  bring  on  another  very  serious  crisis  in 
that   country.      The  astounding  growth  of  business 
and  the  extension  of  railways  in  America,  accompanied 
by  an  ever-increasing  prosperity  for  the  whole  nation, 
in  the  sixteen  years  from  1857  to  1873,  in  spite  of  the 
heavy  loss  of  life  and  enormous  expenditure  during 
the  Civil  War,  have  already  been  spoken  of.     It  was 
from  this  wealthy  nation  that  the  next  blow  was  to 
come  which  would  fall  with  redoubled  force  upon  the 
trade  and  finance  and  industry  of  Europe,  already 
most  injuriously  affected  by  the  Vienna  crash,  which 
had  spread  to  other  countries  and  had  involved  every 
branch   of   business.     New   York  at   this   time   was 
literally  swamped  with  railway  securities  for  which, 
especially  after  the  outbreak  of  the  Vienna  crisis,  no 
outlet  could  be  found  in  Europe.     To  such  an  extent 
had  the  overbuilding  and  rash  financing  been  carried, 
that  the  moment  one  bank  failed  a  succession  of  bank- 
ruptcies became  inevitable.      The  crisis  there  began 
with  the  downfall  of  a  firm  which  had  made  heavy 
advances  on  the  securities  of  the  Missouri,   Kansas, 
and  Texas  Railroad,  followed  by  the  suspension  of 
payments  on  the  part  of  another  firm  which  had  acted 
in  the  same  capacity  towards  the  Canada  Southern. 


116  COMMERCIAL  CRISES  OF 


Thereupon  came  the  appointment  of  a  receiver  for  the 
New  York,  Oswego,  and  Midland  Raih'oad. 

Directly  afterwards,  on  September  18th,  down  came 
the  bank  of  Jay  Cooke  &  Co.,  with  their  branch  bank 
of  Jay  Cooke,  M'Culloch  &  Co.  in  London,  in  which 
latter  city,  however,  they  had  never  attained  to  a 
very  high  position,  in  spite  of  the  fact  that  they  were 
the  financial  agents  of  the  United  States  Government. 
Their  fall  was  due  to  their  intimate  connection  with 
the  Northern  Pacific  Kail  way,  and  the  affect  of  it  was 
both  immediate  and  disastrous;  the  position  which 
the  firm  had  held  in  relation  to  United  States  loans, 
and  the  general  financial  business  of  the  Government 
rendering  their  collapse  the  more  serious  from  all 
points  of  view,  especially  as  they  had  in  hand  at  this 
very  time  the  negotiations  for  the  formation  of  a 
syndicate  to  float  United  States  bonds  at  a  lower  rate 
of  interest.  Concerning  the  details  of  the  general 
crash  and  liquidation  which  followed,  it  is  unnecessary 
to  say  much.  Banking  house  after  banking  house 
came  down,  and  the  New  York  Stock  Exchange  was 
closed,  only  opening  again  on  Septembe,r  SOth.  But 
jrreat  commercial  and  distributino^  houses  were  also 
obliged  to  suspend  payments.  Not  a  single  industry 
remained  unaffected  by  the  collapse,  which,  as  in 
Vienna,  was  at  first  thought  to  be  purely  a  Stock 
Exchange  difiiculty. 

Strangers  who  were  in  America,  or  engaged  in 
American  business  at  the  time,  were  as  much  surprised 
at  the  sudden  and  universal  sweep  of  the  catastrophe 
as  they  had  been  at  the  previous  extraordinary  infla- 
tion.     Throughout  the  whole  of  the   United  States 


THE  NINE  TEE  NTH  CENTUR  Y.  1 1 7 

it  seemed  as  if  some  great  disruption  bad  occurred. 
There  was  a  glut  in  every  department  oi"  trade, 
almost,  it  may  be  said,  in  every  warehouse.  Mills, 
factories,  and  workshops  of  every  kin<l  were  closed 
in  the  West,  as  well  as  in  the  East,  or  worked  short 
time.  The  almost  universal  suspension  of  work  on 
the  new  railways  threw  tens  of  thousands  of  labourers 
out  of  M'ork,  while  the  old  railways  only  made  such 
betterments  as  were  absolutely  indispensable.  The 
influence  of  this  upon  the  iron  and  steel  trades,  and 
upon  the  iron  and  coal  mining  industries,  was  felt 
immediately.  Thousands  of  men  were  unavoidably 
dismissed  in  these  departments,  and  from  a  third  to  a 
half  of  the  workpeople  in  the  Eastern  States  were 
said  to  be  without  employment.  The  number  of 
actual  "  tramps"  during  the  winters  of  1873  and  1874 
was  placed  as  high  as  3,000,000  out  of  a  total  popula- 
tion of  little  over  40,000,000.  When  to  these  are 
added  the  numbers  who  starved  quietly  at  home,  the 
proportion  of  workless  persons  to  the  entire  popula- 
tion seems  something  prodigious.  In  New  York, 
Pennsylvania,  Ohio,  and  the  New  England  States,  the 
state  of  things  was  quite  deplorable. 

The  condition  of  the  West  was  little  better.  All 
prices  were  down  and  yet  goods  were  unsaleable. 
Cotton,  wheat,  wool,  lead,  iron,  steel,  leather,  were  all 
selling  from  20  per  cent,  and  more  below  the  prices 
they  had  fetched  before  the  crisis.  Importers  were 
in  the  same  case  as  the  manufacturers  and  contractors. 
Even  at  the  full  shrinkage  they  could  not  realise  on 
their  goods.  Wholesale  and  retail  traders  were  in 
the  same  hopeless  condition  unless  they  had  obtained 


ii8  COMMERCIAL  CRISES  OF 


time  from  their  creditors.  The  whole  country  looked 
as  if  it  were  suffering  from  some  huge  natural  catas- 
trophe. It  was  nothing  short  of  horrible  to  go 
through  some  of  the  districts  where,  but  a  few  months 
before,  all  the  indusbies  had  been  in  full  swing,  where 
the  people  were  in  the  enjoyment  of  a  good  standard 
of  living,  anticiiating  the  continuance  of  employ- 
ment at  high  wages,  and  now  to  find  whole  towns  full 
of  workers  standing  idle,  and  not  knowing  what  to 
expect  next.  For,  once  more,  it  was  not  only  the 
mismanagement  of  the  past  that  was  to  blame  for  the 
fearful  condition  of  worklcss  misery  into  which  the 
industrious  wealth-producers  had  been  plunged,  but 
the  mismanagement  of  the  present  alike  in  America 
and  in  Austria. 

There  were  the  unsaleable  goods  lying  to  their 
damage  in  the  warehouses;  there  was  the  machinery 
rusting  and  depreciating  for  want  of  use ;  there  stood 
the  labourers,  eager  to  work  and  to  produce  useful 
articles,  or  to  complete  great  highways  of  communica- 
tion in  return  for  some  of  this  food  and  tliese  clothes, 
etc.,  which  were  so  cheap  that  they  could  not  buy  them. 
And  yet  it  passed  the  wit  of  man,  as  exercised  in 
modern  society,  to  bring  these  two  sides  of  production 
and  consumption  together  for  the  benefit  of  all,  by 
reason  of  tlie  fact  that  the  wit  of  man  in  society  to- 
day is  so  bemused  by  the  complications  of  that  society 
that  employers  and  employed  alike  still  imagine  that 
these  periods  of  collapse  are  inevitable,  and  that  hard 
times  cannot  but  come.  At  any  rate,  83  railway  com- 
panies, with  a  capital  of  some  £.50,000,000,  suspended 
payment,  and   workmen    were  discharged   in   every 


THE  NINE  TEENTH  CENTUR  Y.  119 

direction.  And  as  the  theory  of  the  well-to-do  classes 
throughout  the  United  States  is,  that  no  man  need 
ever  be  out  of  work  except  by  his  own  fault,  and  that 
a  vagrant  is  to  all  intents  and  purposes  a  criminal,  the 
way  in  which  the  unfortunate  workers  were  treated 
during  this  sad  time  for  them,  may  be  imagined. 
America  is  a  hard  place  for  a  poor  man  during  a  trade 
depression. 

As  usual  in  all  countries  after  a  crash  of  this  sort, 
instead  of  looking  into  the  methods  of  production, 
and  the  unregulated  maladministration  of  capital,  the 
rich  and  their  governments  began  to  overhaul  the  bank- 
ing system  and  those  currency  arrangements  which, 
however  defective  they  may  be,  cannot,  by  any  possi- 
bility, create  an  industrial  crisis,  though  they  may  and 
do  intensify  one  when  it  comes.  The  United  States 
had  devoted  itself  since  the  war  to  the  improvement 
of  its  general  credit ;  and  the  steady  repurchase  of  its 
bonds  had  placed  the  Republic  in  the  first  rank  of 
borrowers  so  far  as  its  State  debt  was  concerned. 
But  it  had  left  its  paper  money,  which  bore  no  in- 
terest, to  settle  itself,  this  paper  money  being,  prac- 
tically, an  inconvertible  currency,  and  silver  only  legal 
tender  up  to  five  dollars.  But  although  it  may  be 
granted  that  this  currency  question  had  some  influ- 
ence, it  must  surelv  be  clear  even  to  the  most  bigoted 
doctrinaire  in  currency  matters  that,  assuming  that  the 
United  States  had  put  matters  on  so  sound  a  footing 
that  no  inconvertible  paper  had  been  in  circulation 
at  all ;  that  the  note  issue  of  the  banks  had  been  repre- 
sented by  bullion  up  to  their  full  value ;  and  that  the 
supply  of  gold  and  silver  had   been  unprecedently 


COMMERCIAL  CRISES  OF 


large  ;  still  the  expenditure  of  so  much  labour  and 
capital  on  rail\va3\s,  on  mines,  on  the  production  of 
commodities,  and  on  the  provision  of  luxuries  must 
have  brought  about  a  crisis.  Losses  had  been  incurred 
which  some  one  had  to  pay  foi-,  and  goods  had  been 
produced  to  such  an  extent  that,  the  market  for  them 
being  what  it  was,  further  profit  could  not  be  made 
by  producing  them  on  the  same  scale  any  longer. 
Consequently,  the  individuals  and  companies  who  had 
incurred  the  losses  had  to  go  into  liquidation ;  the 
traders  who  had  more  goods  on  hand  than  they  could 
dispose  of  were  compelled  to  ask  for  time  in  which  to 
dispose  of  them ;  the  employers  of  labour  either  could 
not  carry  on  their  contracts  or  get  orders  for  more 
goods ;  and  the  result  of  it  all,  no  matter  how  the  cur- 
rency stood,  must  still  have  been  as  it  was,  that  men  and 
women  would  be  thrown  out  of  work  and  industry 
would  be  involved  in  a  crisis. 

In  such  circumstances  it  is  not  in  tlie  power  of 
banks  or  currency  manipulators  to  put  matters  right. 
Organisation  of  labour  by  the  community  is  needed, 
and  of  all  countries  in  the  world  the  United  States  is 
most  opposed  to  any  interference  with  the  anarchy 
engendered  by  the  capitalist  system.  And  if  such 
crises  as  these  of  1857  and  1873  could  occur  in 
America,  with  its  unlimited  territory,  its  vast  resources 
of  every  kind,  and  constant  influx  of  the  cream  of  the 
European  populations,  many  of  the  immigrants  bring- 
ing their  own  capital,  it  is  manifest  that  the  older 
communities  which  do  not  possess  these  advantages 
are  likely  to  suffer  still  more  severely  from  them  as 
time  ffoes  on. 


THE  NINETEENTH  CENTURY. 


But  now  it  was  the  turn  of  Germany  and,  after  her, 
of  France  and  England,  to  experience  the  inconveni- 
ences arising  from  the  ups  and  downs  of  modern  trade. 
80  far  the  Vienna  crisis  had  only  partially  affected 
the  principal  German  Stock  Exchanges.  The  period  of 
inflation  continued  months  after  the  crash  in  Vienna 
had  disorganised  the  whole  business  of  Austria- 
Hungary.  In  the  first  six  months  of  1873  no  fewer 
than  196  new  companies,  with  a  gross  capital  of 
£25,000,000,  were  set  on  foot  in  Prussia  alone,  and 
even  so  late  as  July,  August,  and  September,  capital 
to  the  amount  of  nearly  £15,000,000  was  asked  for 
similar  undertakings.  There  was  certainly  no  taking 
in  of  sail  or  preparation  to  meet  danger  in  all  this. 
On  the  contrary,  the  mania  for  speculation  carried  on 
the  inflation  up  to  the  very  last  moment.  The  crash 
in  Vienna  took  place  early  in  May :  yet  in  October  a 
number  of  -new  companies  w^ere  launched  in  North 
Germany.  The  inflation  was  rendered  greater  and 
more  serious  in  its  effects  by  the  gambling  shops, 
mis-called  banks,  which  were  set  on  foot  in  every 
German  town  of  any  importance,  to  aid  in  fostering 
the  premium  hunt  that  was  going  on,  more  parti- 
cularly in  the  shares  of  the  rotten  and  over-capitalised 
building  companies  which  were  now  at  preposterous 
prices.  The  total  amount  of  capital  required  for 
various  enterprises  in  Prussia  far  exceeded  the  pos- 
sible savings  of  the  nation. 

In  the  end  the  crash  came  here  too  and  produced 
similar  effects  to  those  which  had  been  felt  in  Austria 
earlier  in  the  year.  One  after  the  other  the  paper- 
built  schemes  tottered  and  fell.     Thousands  of  work- 


COMMERCIAL  CRISES  OF 


people  were  thrown  out  of  work,  the  crisis  continuing 
at  its  height  for  upwards  of  two  months,  after  wliich 
the  full  extent  of  the  oflut  and  stas^nation  and  the 
consequent  distrust  was  perceived.  In  Austria  the 
State  was  called  in  to  help  the  sufferers  from  the 
social  bankruiitcy,  and  though  the  advances  were 
made,  of  course,  to  the  middle-class,  the  workers 
benefited  to  some  extent :  in  Prussia  and  Germany 
the  anti-State  view  was  on  the  whole  taken,  and  the 
workers  suffered  the  more.  The  spread  of  the  crisis 
to  Italy,  Sweden,  Holland,  and  other  countries,  where 
railway  and  building  speculations  had  been  pushed 
beyond  the  bounds  of  all  reason,  was,  of  course,  in- 
evitable, and,  as  each  nation  received  the  shock,  the 
general  glut  and  stagnation  of  trade  were  more 
severely  felt  by  the  rest.  Necessarily,  for  if  the 
workers  cease  to  produce  in  one  part  of  the  civilised 
world,  there  is  less  demand  for  the  articles  which 
they  consume  themselves  and  less  demand  for  the 
luxuries  consumed  by  their  employers.  Thus,  bad 
trade  tends  to  develop  bad  trade,  as  ,good  trade 
expands  the  area  of  good  trade,  until  such  time  as  the 
world's  business  has  "  touched  bottom,"  and  the  up- 
ward cycle  recommences  with  as  little  foresight  and 
consideration  as  before  by  those  who  form  part  of  it. 

In  Great  Britain,  though  the  crisis  of  1873  could 
not  fail  to  produce  a  temporary  panic,  and  early  in 
November  the  rate  of  discount  at  the  Bank  of  Eng- 
land ran  up  to  the  crisis  point  of  .9  per  cent.,  and 
there  seemed  a  probability  of  a  renewal  of  the  scenes 
of  186G  and  1857,  the  reserve  in  the  bank  remained 
at  a  sufficient  height  to  check  an  actual  furious  rush. 


THE  NINETEENTH  CENTURY. 


Since  1869,  the  country  had  been  enjoying  such 
marked  prosperit}^  and  precautions  had  been  so 
widely  taken  after  the  warning  of  186G,  that  in  pro- 
portion to  the  growing  wealth  of  the  country  the 
commitments  were  not  excessive.  The  speculation 
had  not  overstepped  the  bounds  of  ordinar}^  capitalist 
prudence  in  good  times,  or,  at  any  rate,  the  losses  in 
Paraguay,  Honduras,  San  Domingo,  and  the  Argentine 
Republic  were  small  in  comparison  with  the  general 
wealth  of  the  nation,  while  the  orders  to  manu- 
facturers which  these  loans  and  others  to  the 
Australian  Colonies,  New  Zealand,  and  Canada  had 
occasioned,  gave  a  still  further  impetus  to  a  period  of 
exceptional  good  fortune. 

Thus,  the  rush  for  gold  to  the  Bank  of  England 
early  in  November  found  Great  Britain  better  pre- 
pared, perhaps,  than  at  any  other  time  to  meet  it,  and 
it  is  interesting  to  compare  the  very  trifling  fall 
which  took  place  in  Consols  in  November,  1873,  with 
the  wholesale  deterioration  which  took  place  during 
the  earlier  panics.  Even  the  American  Government 
securities,  which  in  the  circumstances  might  have 
been  specially  sold,  only  fell  \  per  cent,  at  the  time  of 
the  greatest  depression.  It  may  indeed  be  said  that 
Great  Britain  on  the  occasion  of  this,  the  heaviest 
crisis  which  had  been  felt  on  the  Continent  of  Europe, 
and  possibly  in  America,  escaped  with  little  more 
that  a  sharp  financial  scare  and  losses  to  a  class  of 
investors  who  could  well  afford  to  lose.  That  the 
results  of  the  crisis  were  felt  when  the  general 
shrinkage  of  prices  set  in  a  few  years  later  is  probable, 
for  it  is  impossible  to  say  where  such  a  collapse  as 


124  COMMERCIAL  CRISES  OF 

that  of  1873  comes  to  an  end ;  but  for  the  time  being 
there  was  assuredly  no  such  industrial  stagnation 
here,  following  immediately  upon  the  financial  crisis  of 

1873,  as  had  accompanied  the  previous  crises.  It  was 
a  foreign  crash  which  incommoded  rather  than  perma- 
nently injured  British  trade  and  industry.  For  in  1873, 

1874,  and  1875,  prices  rose  to  a  higher  point,  especially 
for  coal  and  iron,  than  had  ever  yet  been  reached. 

In  the  winters  of  1874  and  1875,  such  was  the 
demand  foi-  coal  for  all  purposes,  that  household  coal 
in  London  was  bought  retail  at  between  50s.  and  60s.  a 
ton,  or  about  three  times  its  ordinary  price.  Similar  ab- 
surd prices  were  obtained  for  pig-iron,  cotton,  wool,  and 
all  raw  materials,  the  prices  thus  paid  being,  of  course, 
fully  represented  in  the  cost  of  the  finished  article.s. 
This  is  the  period  so  often  referred  to  by  opponents 
of  the  working-classes  of  Great  Britain  as  that  in 
which  Englishmen  drank  themselves  out  of  their 
indebtedness,  and  when  pitmen  are  supposed  to  have 
given  beef-steaks  to  their  bull-dogs,  while  they  drank 
one  another's  health  in  champagne.  Tlmt  these  were 
grotesque  misrepresentations  of  the  truth  needs  no 
demonstration.  But,  even  assuming  the  statements  to  be 
true,  at  this  very  time  the  yearly  savings  for  invest- 
ment made  by  the  well-to-do,  non-producing  classes, 
were  estimated  at  not  less  than  £200,000,000  a  year, 
and  the  total  capitalised  wealth  of  the  country  was 
put  by  the  same  authority  at  £8,500,000,000  as 
against  £0,100,000,000  in  18G5,  an  increase  of  wealth 
probably  quite  unequalled  in  any  old-settled  country 
within  so  short  a  space  of  time. 

But    the   reaction,   though   it    did   not   come   im- 


THE  NINE TEENTH  CENTUR  Y.  125 

mediately,  was  not  far  off.  If  England,  thanks  to  a 
long  series  of  good  luck,  did  not  participate  in  the 
miseries  entailed  by  the  great  international  crisis  of 
1873  on  other  countries,  the  United  Kingdom  was 
not  destined  to  escape  unscathed  for  more  than  a  few 
years  from  the  inevitable  consequences  of  a  long 
course  of  prosperity.  A  shrinkage  of  prices  even 
below  the  lowest  point  yet  touched  followed,  and 
with  this  shrinkage  a  reduction  of  wages  in  every 
department  of  industry,  which  brought  on  strike 
after  strike,  and  a  discharge  of  labourers  in  every 
department  of  trade.  There  was  a  fearful  stagnation 
and  glut  in  commerce  and  industry,  and  so  great  was 
the  fall  in  prices  that  even  men  who  were  in  a  posi- 
tion to  know  better  attributed  the  change  more  to 
the  scarcity  of  gold  brought  about  by  the  demonetisa- 
tion of  silver  and  the  adoption  of  a  gold  standard  in 
Germany  and  other  countries  than  to  the  glut  occa- 
sioned by  the  use  of  improved  machinery  alike  in 
agriculture  and  in  manufacture.  Others  raised  again 
the  cry  of  "  over-production."  As  if  food  could  have 
been  over-produced  either  in  America  or  in  Europe 
when  hundreds  of  thousands,  not  to  say  millions,  of 
men  and  women  were  miserably  underfed,  but  could 
not  afford  to  buy  wheat  or  even  Indian  corn  in 
sufficient  quantity;  though  the  price  of  this  necessary 
of  life  was  lower  both  actually  and  relatively  than  it 
had  ever  been  known  to  be  in  modern  times.  For 
America  was  developing  her  agricultural  resources 
again  upon  a  stupendous  scale,  and  produced  in  the 
year  1878,  which  was  a  bad  year  for  English  trade, 
no  fewer  than  420,000,000  bushels  of  wheat,  and  the 
export  of  American  wheat  and  other  produce  had 


126  COMMERCIAL  CRISES  OF 

now  attained  such  proportions  that  English  agricul- 
ture was  crushed  by  its  competition. 

The  marvellous  improvement  in  transport  and  cost 
of  freight,  which  rendered  it  cheaper  to  send  grain 
from  the  far  West  to  London  than  to  send  it  from  the 
Lothians,  had  its  practical  disadvantages  for  Great 
Britain  in  the  effects  which  it  produced  upon  that 
which  is  still  the  greatest  industry  in  this  as  in  other 
countries.  Agriculture  in  the  form  of  grain-growing 
became  unprofitable  in  these  islands  except  upon  the 
better  soils,  and  the  system  of  landownership  and 
land  cultivation  in  England  does  not  allow  the 
greatest  advantage  to  be  taken  even  of  favourable 
opportunities.  Grain-growing  fell  off  more  and  more, 
and  the  numbers  of  live  stock  were  materially  re- 
duced. Hence,  although  the  workers  of  the  cities 
found  that  their  wages  went  further  when  they  were 
wholly  or  partially  employed,  and  the  well-to-do 
classes  were  able  to  purchase  all  the  articles  needed 
for  the  supply  of  their  households  from  25  to  40  or 
50  per  cent,  cheaper  than  ever  before,  yet  the 
working-classes  as  a  whole  had  little  to  congratulate 
themselves  upon.  Their  uncertainty  of  employment 
became  worse  and  worse.  The  agricultural  labourers 
who  were  unable  to  get  employment  on  the  land, 
partly  owing  to  the  increasing  severity  of  American 
competition,  and  partly  owing  to  the  introduc- 
tion of  labour-saving  machinery  into  agriculture 
in  this  country  as  elsewhere,  crowded  into  the 
cities  and  still  further  intensified  the  competition 
for  employment  in  periods  of  stagnation  by 
swelling  the  numbers  of  those  out  of  work.      The 


THE  NINE  TEE  NTH  CENTUR  V.  127 

same  causes  were  at  woi'k  at  the  same  time  among 
the  small  farmers  and  peasant  proprietors  of  France, 
Germany,  and  Austria.  There  also  the  machine-sown 
and  machine-reaped  grain  of  America  was  bringing 
about  the  ruin  of  the  agriculturists,  and  attempts  were 
made  to  lessen  by  taxation  the  damage  done  to  this 
class  bj'  the  unprecedented  invasion  of  the  European 
mai-kets  by  cheap  food  from  America  and  later  from 
India.  The  protective  duties  imposed  with  this  object 
in  view  had,  of  course,  the  effect  of  raising  the  cost  of 
subsistence  to  the  urban  population. 

Thouo'h  there  was  no  actual  crisis  in  Enofland  or  in 
any  other  European  country  between  1873  and  the 
fall  of  the  Union  Generale  in  1882,  the  heavy  losses  on 
Turkish,  Peruvian,  American,  Egyptian,  Paraguayan, 
and  other  foreign  loans,  the  fall  of  the  Glasgow  City 
Bank  in  1878,  and  the  consequent  shock  to  business  and 
credit,  brought  about  a  period  of  stagnation  and 
shrinkage  of.  prices  which  lasted  with  but  little  im- 
provement for  the  mass  of  the  people  for  several 
years.  It  will  shortly  appear,  indeed,  that  we  have 
entered  upon  an  epoch  when  periods  of  a  long,  slow 
drag  of  liquidation  below  the  surface,  coming  in  quick 
succession,  have  replaced  the  panic  and  crash  of  the 
earlier  crises.  That  the  effect  is  precisely  the  same, 
and  the  injury  to  the  mass  of  the  people  possibly  even 
greater,  cannot  be  doubted.  But  the  crisis  of  1873 
is  so  far  the  last  crisis  which  has  taken  the  old  form. 
Since  then  the  capitalist  class  has  learnt  the  art  of 
combination  and  mutual  support  in  times  of  danger 
without,  however,  taking  any  care  to  safeguard  the 
interests  of  the  people. 


128  COMMERCIAL  CRISES  OF 


CHAPTER  VIII. 

THE     CRISIS     OF     1882. 

The  crisis  of  1882  in  Paris,  which  was  the  crisis  of 
the  Union  Generale  and  its  tributaries,  reads  Hke  a 
financial  nightmare,  and  has  formed  the  basis  of 
Zola's  novel,  "  L' Argent."  It  was  a  clever  and  a  taking 
notion  that  the  Catholics  should  establish  a  great 
banking  and  promoting  enterprise  of  their  own,  sup- 
ported by  the  wealth  of  the  rich  devotees  of  Holy- 
Mother  Church  and  the  accumulations  of  the  re- 
ligious bodies,  wherewith  to  meet  the  ungodly  and  the 
scoffer,  the  Jew,  the  worldling,  the  freethinker,  and 
rout  them  even  in  the  temple  of  Mammon  their  god. 
And  the  man  who,  if  he  did  not  conceive,  at  any  rate 
executed  this  brilliant  project  with,  for. a  time,  amaz- 
ing success,  was,  of  course,  as  little  troubled  with 
religious  prejudices  as  he  was  affected  by  moral 
scruples.  If  ever  there  was  an  astounding  effort  in 
the  way  of  financial  balloonery  successfully  made  and 
its  speedy  collapse  rendered  certain  from  the  com- 
mencement, this  of  the  Union  Generale  was  that  one. 
It  lasted  four  years,  from  1878  to  1882.  Had  the 
head  of  the  enterpiise  been  honest,  it  is  possible  that 
the  foundation  might  have  been  laid  for  a  gigantic 
business.  As  it  was,  these  four  years  witnessed  the 
rise  and  fall  of  a  gigantic  fraud. 


THE  NINETEENTH  CENTURY.  129 

If,  as  some  consider,  the  Union  Generale  was  simply 
a  stock-jobbing  experiment,  it  would  certainly  not  be 
worthy  of  consideration  in  these  pages.  Mere  panics 
in  stocks,  though  interesting  to  some  extent  as  show- 
ing the  excitement  and  the  gullibility  of  men  in  such 
matters,  and  how  even  sober  investors  may  be  drawn 
into  foolish  action  at  times  of  general  elation  or 
general  depression,  may  and  do  occur  from  political 
or  other  causes  without  producing  any  serious  effect 
on  the  general  well-being.  But  the  upset  of  the 
Union  Generale  had  a  direct  influence  upon  industry 
and  commerce,  and,  coming  at  the  time  it  did,  had  its 
share  in  bringing  about  the  long  depression  which 
prevailed  in  Great  Britain  and  other  European  coun- 
tries from  1883  to  1888.  It  may  be  doubted  indeed 
whether  France  herself,  with  all  her  industry  and 
natural  advantages,  has  yet  fully  realised  the  mis- 
chief done  by  the  Union  Generale  and  the  failure  of 
the  Panama  Canal.  The  one  beginning  by  operations 
in  the  region  of  banking  and  the  Stock  Exchange, 
ended  by  doing  much  mischief  to  industry  ;  the  other 
commencing  as  a  legitimate  enterprise  for  the  im- 
provement of  communications  is  ending  as  a  cause  of 
serious  financial  disturbance. 

M.  Eugene  Bontoux,  the  founder  and  organiser 
and  destroyer  of  the  Union  G(^nerale,  was  a  man  of 
no  greater  ability  or  foresight  than  dozens  of  others 
who  may  be  met  any  day  in  the  vicinity  of  the 
great  Bourses  of  Europe.  He  had  neither  the  power- 
ful intelligence  of  a  Vanderhill  nor  the  unscrupulous 
and  crafty  cunning  of  a  Jay  Gould ;  yet,  in  a  few 
months,  he   obtained   control  of   resources  from  the 

I 


I30  COMMERCIAL  CRISES  OF 

public  which  placed  him  on  a  level  with  the  magnates 
of  finance  and  earned  for  him  the  immortal  honour 
of  having  forced  a  Rothschild  to  commit  suicide. 

The  causes  of  his  temporary  success  are  not  far  to 
seek.  First,  he  began  his  operations  at  an  excep- 
tionally favourable  moment.  France,  in  the  amaz- 
ingly short  space  of  seven  years,  had,  to  all  appearance, 
recovered  almost  wholly  from  the  losses  occasioned 
by  her  defeat  in  the  great  war.  She  had  bought 
back  the  greater  part  of  her  loans  from  abroad ;  had 
carried  out  a  series  of  important  jDublic  works  in  the 
shape  of  railways,  canals,  docks,  warehouses,  etc. ;  was 
in  process  of  reorganising  her  army  and  navy ;  had 
escaped  the  crisis  of  1873,  which  had  inflicted  such' 
serious  damage  on  Austria,  Germany,  the  United 
States,  and  other  countries  ;  and  had  at  the  same  tirae^ 
accumulated  savings  on  a  large  scale.  All  this  had 
been  done  notwithstanding  the  political  intrigues  and 
changes  of  Government  which  harassed  the  Republic, 
and  now  France  stood  ready  to  take  another  move 
forward  as  an  important  financial  influence  in  Europe. 
Secondly,  the  policy  of  the  statesmen  of  the  Repub- 
lic had  roused  Catholic  feeling  and  had  encourao-ed 
Catholic  unity  to  an  extent  which  they  had  scarcely 
reckoned  upon.  Shut  out  from  the  political  power 
to  which  they  considered  themselves  entitled,  Catho- 
lics welcomed  the  suggestion  that  they  should  make 
themselves  felt  in  the  sphere  of  finance,  which  was 
under  the  control  of  their  enemies..  Thirdly,  the  French 
market  offered  special  opportunities  for  the  successful 
inauguration  of  such  a  scheme  as  M.  Bontoux's,  owing 
to   its  lack    of  any  proper  regulations  in  regard   to 


THE  NINETEENTH  CENTURY.  131 

company -mongering.  A  company  could  buy  its  own 
shares  on  the  French  Stock  Exchange,  either  before 
or  after  they  were  fully  paid-up,  and  thus  create  a 
false  scarcity  of  stock  and  manipulate  a  fictitious 
premium  with  the  shareholders'  own  money.  Then, 
on  the  strength  of  a  high  price  thus  artificially  estab- 
lished and  maintained,  the  company  could  make  a 
further  issue  of  shares  before  the  first  shares  had  been 
fully  paid.  It  was  upon  this  combination  of  favour- 
able circumstances  that  the  Union  Generale  was 
founded  by  M.  Bontoux. 

Recent  experience  in  Austria  and  German}^  was,  to 
the  misfortune  of  the  public,  completely  disregarded, 
and  M.  Bontoux,  though  he  came  forward  from  his 
connection  with  an  Austrian  railway  with  none  too 
clean  hands,  was  received  as  a  financial  genius  by 
Catholic  society  in  France.  The  object  of  the  Union 
Generale,  as  was  boldly  proclaimed  on  the  face  of  the 
prospectus,  was  to  bring  together  the  capital  of  good 
Catholics,  and  to  centralise  tlio  financial  interest  of 
bishops,  religious  missions,  and  private  companies. 
The  union  started  on  its  eventful  career  with  the 
pi'ayers  and  blessings,  followed  by  the  deposits,  of  the 
faithful.  Those  deposits  rose  from  less  than  £1,000,000. 
at  the  end  of  1878,  to  upwards  of  £5,000,000,  in  1881. 
Branches  were  set  on  foot  in  many  French  cities,  and 
in  Austria.  And  then  the  gambling  began  in  earnest. 
The  money  of  the  shareholders  and  depositors  was 
used  to  buy  the  shares  on  the  market,  thus  forcing 
them  up  to  a  preposterous  price;  and  the  shares  having 
been  divided,  they  were  again  run  up  in  the  same 
way. 


COMMERCIAL  CRISES  OF 


This,  however,  was  not  the  worst  part  of  the  matter 
by  any  means.  Gambling  on  the  Stock  Exchange, 
like  gambling  at  Monte  Carlo,  is  a  matter  of  small 
importance,  except  to  those  who  waste  their  time  and 
squander  their  money.  What  one  loses  another  gains. 
But  it  is  a  very  different  thing  when  the  money  which 
people  cannot  afford  to  take  from  useful  business  is 
used  to  employ  labour  on  enterprises  which  have  no 
chance  of  succeeding  eventually.  And  this  the  Union 
G^nerale  was  forced  to  do,  in  order  to  justify  the  tre- 
mendous premium  at  which  its  shares  were  quoted, 
and  which  pulled  up  the  wdiole  market  with  them. 
Then  set  in  a  regular  tussle  between  the  "  bulls  "  and 
the  "bears," — the  gamblers  for  the  rise  and  the 
gamblers  for  the  fall.  Among  the  latter  were  the 
Jews,  who  knew  right  well  that  the  whole  thing  was 
fraudulent;  that  the  investments  made  and  enterprises 
undertaken  were  rotten ;  and  that  sooner  or  later  a 
crash  was  inevitable.  Yet  such  was  the  infatuation 
of  the  Catholics,  followed  by  the  general  public,  that 
at  first  the  Jews  were  beaten.  In  the' long  run  they 
had  their  revenge,  and  in  the  spring  of  1882  the 
Union  Generale  fell. 

It  is  the  fashion  to  say  that  this  was  simply  an 
affair  of  the  Bourse  ;  but  it  is  clear,  from  the  course 
which  events  took  afterwards,  that  though  Paris  was 
the  chief  seat  of  the  inflation,  other  markets  were 
very  closely  concerned,  and  other  industrial  centres 
were  most  seriously  affected.  Prom  1883  to  1888 
was  a  time  of  low  prices  and  general  stagnation  of 
trade.  It  was  a  long,  slow,  grinding  crisis  in  Gi'eat 
Britain,  which  was  felt  in  every  trade,  and  was  re- 


THE  NINETEENTH  CENTURY. 


fleeted  in  the  depression  of  every  industry.  There 
seemed  to  be  a  permanent  glut  and  over-production. 
Furnaces  were  blown  out  in  every  iron  district ; 
collieries  were  shut  down,  or  were  running  at  a  loss  ; 
ships  were  laid  up  to  such  an  extent,  owing  to  the  fall- 
ing off  of  the  freights,  that  shipowners  began  to  fear 
that  our  carrying  trade  was  departing  from  us.  All 
this  meant,  of  course,  thousands  and  tens  of  thousands 
of  men  out  of  work,  a  heavy  call  upon  the  Trade 
Unions  for  the  support  even  of  skilled  men  who  could 
get  no  employment,  to  such  an  extent  that  even  the 
most  powerful  of  them  saw  their  solvency  threatened, 
Then  followed  meetings  of  the  unemployed  in  London 
and  in  all  parts  of  Great  Britain,  applications  for  the 
State  organisation  of  labour,  the  West  End  rioting, 
and  the  Mansion-House  Fund,  due  wholly  to  the 
scare  occasioned.  It  was,  in  fact,  a  crisis  of  the  most 
serious  kind,  none  the  less  dreadful  because  at  the 
very  same  time  there  seemed  to  be  no  equivalent 
shrinkage  in  returns  to  income  tax,  and  the  ordinary 
trade  of  the  country  was  proclaimed  by  experts  to  be 
"  sound."  The  workers  suffered  for  the  blunders 
made  by  the  *■  captains  of  industry  "  and  the 
"  organisers  of  labour." 

A  careful  examination  of  the  period  through  which 
we  have  but  just  passed  exhibits  precisely  the  same 
features  on  both  sides  of  the  Atlantic  that  have  been 
manifested  in  former  times  of  crisis.  A  great  advance 
in  the  production  of  wealth  and  improvement  in  the 
cheapness  and  rapidity  of  transport  in  every  depart- 
ment, accompanied  by  bad  trade  and  stagnation.  In 
the  iron  industry,  the  substitution  of  steel  for  iron, 


134  COMMERCIAL  CRISES  OF 

the  extension  of  the  Bessemer  process,  and  the  adop- 
tion of  the  Thomas-Gilchrist  process,  immensely  re- 
duced the  cost  of  production.  In  shipbuilding,  an 
increase  in  the  size  and  speed  of  vessels  without 
precedent  since  the  introduction  of  steamers,  and  a 
corresponding  reduction  in  tlie  quantity  of  coal  used 
to  obtain  a  given  rate  of  speed,  materially  affected  the 
carrying  trade:  the  length  of  voyage  on  all  the  great 
sea  routes  being  reduced  by  from  twelve  to  twenty 
per  cent,  in  a  few  years.  In  textile  industries,  though 
no  great  leap  forward  could  be  recorded,  the  steady 
rate  of  progress  maintained  since  the  beginning  of 
the  century  was  kept  up,  in  spite  of  the  fact  that  the 
competition  in  neutral  markets,  and  in  India  itself, 
for  our  cotton  goods,  rendered  the  rate  of  profit  on  the 
turnover  small  in  comparison  witli  the  huge  gains 
made  in  the  early  days  wdien  our  Lancashire  manu- 
facturers had  virtually  a  monopoly  of  the  trade.  At 
the  same  time  the  coal  mining  industry  was  proceed- 
ing along  tlie  same  path  of  an  ever-increasing  output 
per  man  employed.  In  ten  years  in  the  iron  industry 
there  was  an  increase  of  1,750,000  tons  of  pig  produced 
and  used  by  the  same  number  of  hands.  The  intro- 
duction and  improvement  of  machinery  in  carpeutery, 
and  joinery,  and  cabinet-making,  in  stone-cutting, 
in  biick-making — all  had  the  same  effect  on  produc- 
tion, in  the  way  of  making  commodities  cheaper, 
and  the  number  of  hands  employed  in  each  depart- 
ment to  produce  a  given  amount  of  useful  articles  less 
and  less.  Now  also  electricity  was  beginning  to  show, 
especially  in  the  United  States,  how  ingenious  and 
surprising  experiments,  made  a  few  years  before  in  the 


THE  NINE  TEE  NTH  CENT  UK  V.  135 

laboratory  by  the  unselfish  enthusiasm  of  a  Faraday, 
could  be  turned  to  the  practical  use  of  mankind. 
Electric  lighting,  electric  propulsion,  electric  telegraphs, 
electric  telephones,  electric  power  in  chemistry,  all  be- 
came part  of  the  ordinary  life  of  mankind.  The  older 
societies  could  scarcely  keep  pace  with  this  new  develop- 
ment. "  Vested  interests,"  and  cheap  labour  combined, 
have  headed  back  progress  even  in  Great  Britain,  and 
many  a  petty  township  of  the  Far  West  of  America  is 
consequently  much  better  furnished  with  all  the  new 
appliances  which  science  had  placed  at  the  disposal  of 
the  community  than  the  metropolis  of  the  British 
Empire.  Once  more,  however,  it  was  clearly  proved 
that  all  the  changes,  which  should  have  proved  so 
beneficial,  in  nowise  stayed,  but  on  the  contrary 
rather  prolonged,  the  stagnation  on  both  sides  of  the 
Atlantic. 

It  wa,s  in  -the  midst  of  this  depression,  occasioned 
again  by  superfluity  of  wealth  and  the  excessive  power 
of  man,  as  it  would  seem,  over  the  forces  of  Nature, 
that  all  sorts  of  proposals  were  made  to  deal  with  the 
sad  state  of  things  which  prevailed  for  the  working- 
classes  of  the  United  Kingdom.  The  fearful  famine 
in  Ireland,  largely  arising  from  the  drain  of  wealth  to 
Great  Britain  to  pay  absentee  rents,  naturally  pro- 
duced political  and  social  disturbance  of  a  serious 
character.  In  England,  where  working-people  take 
starvation  as  a  mere  detail  in  their  dreary  career  of 
pleasureless  toil,  there  was,  it  is  true,  a  little  dissatis- 
faction expressed ;  but  as  nothing  seriously  disagree- 
able occurred,  the  governing  classes  contented  them- 
selves with  settinof  forth  the  usual  series  of  absurd 


136  COMMERCIAL  CRISES  OF 

remedies  for  evils  which  can  only  be  met  by  dealing 
with  their  causes  at  the  root.  Thus  it  was  but  a 
few  years  ago — but  the  fact  is  already  forgotten — 
that  well-meaning  people  stumped  the  country  in 
favour  of  thrift  for  labourers  who  were  earning  not 
more  than  twelve  shillings'a-week  all  the  year  round, 
including  their  extra  pay  during  harvest.  Some, 
too,  held  forth  on  the  advantages  of  temperance  as  a 
cure  for  bad  trade.  A  third  party  earnestly  advo- 
cated State-aided  emigration.  A  single  tax  upon 
land  values,  as  preached  by  Mr.  Henry  George,  was 
the  nostrum  of  a  fourth.  Others,  again,  pointed  to 
peasant  proprietary  as  a  necessity  if  a  national  catas- 
trophe were  to  be  escaped.  It  was  at  this  time  also 
that  the  "  Bitter  Cry  of  Outcast  London  "  was  pub- 
lished, and  created  a  considerable  stir.  The  public 
was  beginning  very  slowly  to  recognise  the  fact  that 
all  this  stagnation  might  be  owing,  not  to  outside 
influences,  but  to  arrangements  which  might  be  satis- 
factorily controlled  if  only  they  were  studied.  From 
this  to  action  is,  however,  a  very  long  w-ay. 

The  main  facts  of  the  situation  were  put  on  record 
by  me  at  the  time  in  the  Nineteenth  Century  in  reply 
to  those  who  contended  that  the  glut  and  depression 
were  due  to  the  inability  of  this  country  to  supply 
itself  with  food,  and  to  over-population  which  could 
only  be  met  hy  emigration.  "  We  are  now  (1884)  de- 
pendent on  foreign  sources  for  half  our  food  supply, 
which  we  obtain  partly  in  return  for  goods  exported, 
and  partly  in  payment  of  interest  on  capital  lent. 
To  devote  more  labour  to  raising  food  than  we  could 
get  it  for  by  devoting  less  labour  to  producing  other 


THE  NINE  TEEN  TH  CENTUK  Y.  137 

commodities  is  clearly  bad  policy  so  lonoj  as  we  com- 
mand the  sea  and  can  carry  on  such  exchange.  It  is 
not  the  amount  of  food  which  can  be  grown  in  these 
islands  that  limits  population,  or  what  has  been  called 
the  supply  and  demand  of  labour  in  Great  Britain. 
That  depends  upon  the  state  of  the  world-market  for 
goods  and  the  profit  which  has  been  made  by  the 
capitalist  class  under  the  present  conditions  of  pro- 
duction. Thus  there  is  over- population,  and  thousands 
of  men  are  out  of  work  all  along  the  Clyde  to-day ; 
but  about  two  years  ago  there  were  not  hands  enough 
to  do  the  business  which  flowed  into  the  shipyards, 
and  mere  boys  not  out  of  their  apprenticeship  were 
coming  from  other  centres  to  earn  32s.  a  week  as 
rivetters.  Is  this  soi't  of  '  boom  '  and  depression,  with 
its  accompanying  periods  of  over-work,  followed  by 
slack  time  and  over-population,  due  merely  to  the 
natural  increase  of  our  people  ?  Assuredly  not. 
There  is  some  other  cause  at  work  to  make  use- 
ful labourers  useless  within  a  period  of  a  few 
months." 

"  But  I  deny  the  actual  over-population,  so  far  as  the 
labourers  are  concerned,  altogether.  Never,  assuredly, 
was  the  power  of  man  over  nature  so  great  as  it  is  to- 
day. Never  in  the  history  of  the  human  race  was  so 
much  wealth  raised  with  so  little  labour.  Relatively, 
fewer  hands  are  employed  in  the  iron,  coal,  cotton, 
wool,  and  other  industries  than  was  the  case  a  few 
years  ago,  yet  a  much  greater  quantity  of  wealth  is 
produced.  A  few  figures  will  make  this  quite  clear. 
Thus,  in  the  coal  industry,  538,829  persons  employed 
in  mining  and  handling  coal  above  and  below  ground, 


138  COMMERCIAL  CRISES  OF 

in  the  year  1874,  extracted  140,713,182  tons  of  coal. 
In  the  year  1883,  514,933  persons  produced  163,737,327 
tons,  an  increase  of  over  23,000,000  tons,  though 
24,000  fewer  persons  were  employed.  In  1874  the 
miners  won  261  tons  of  coal  per  head  ;  in  1883,  334 
tons  a  head ;  yet  in  the  latter  year  53,896  of  them 
were  out  of  work — became  over-population  that  is. 
In  the  working  of  iron  and  steel  360,356  persona  were 
emplo3^ed  in  1872  and  produced  and  used  6,741,929 
tons  of  pig-iron  ;  in  1883,  361,343  persons  were  so 
employed,  and  they  produced  8,490,224  tons,  or  an 
increase  of  1,750,000  tons  for  virtually  the  same  num- 
ber employed !  In  the  cotton  and  flax  industry 
570,000  persons  used  1,266,100,000  pounds  of  cotton 
in  1874;  while  in  1883  but  586,470  persons  used 
1,510,600,900  pounds.  In  every  case  a  trifling  in- 
crease or  actual  decrease  of  persons  employed,  contem- 
poraneously with  a  great  increase  in  production.  All 
this  while  population  has  been  increasing  at  the  rate 
of  10  per  cent,  in  every  ten  years ;  so  that  the  num- 
bers of  actual  workers  remain  stationary,  or  decrease, 
while  the  whole  population  increases.  The  over- 
population then  arises  not  from  a  decrease  in  the 
powers  of  production  but  from  their  increase.  Im- 
proved machinery  gives  greater  wealth  to  the  em- 
ploying class,  but  renders  employment  for  the  workers 
more  uncertain,  substituting  in  many  departments 
women's  and  children's  low-priced  labour  for  that  of 
men,  and  brings  about  the  periods  of  universal  crisis, 
such  as  that  we  are  now  suffering  from — over-produc- 
tir>n,  over-population  and  the  rest  of  it — more  often 
and   renders   them   more   severe.  .  .  .  Mr.    Mundella 


THE  NINETEENTH  CENTURY.  139 

assures  us  triumphantly  that  the  returns  to  income- 
tax  have  increased  from  £578,000,000  to  £601,000,000 
during  even  these  years  of  depression." 

I  have  made  these  extracts  even  at  the  risk  of 
repetition,  because  the  figures  were  brought  together 
in  the  midst  of  the  stagnation,  and  it  is  worth  while 
to  recall  them  now.  Out  of  the  population  of 
26,000,000  in  England  and  Wales  at  that  date, 
16,500,000  belonged  to  the  non-producing  sections. 

In  the  admirable  analysis  of  the  statistics  of  the 
United  States  between  the  years  1870  and  1880,  made 
by  my  able  correspondent.  Dr.  H.  Stiebeling  of  New 
York,  in  his  pampldet,  "  Das  Werth-Gesetz  und  die 
Profit-Rate,"  the  truth  appears  far  more  clearly  than 
we  in  England,  with  our  very  imperfect  statistical 
department,  can  as  yet  exhibit  it.  Thus,  in  1870,  the 
total  capital  embarked  in  the  factory  industry  and  in 
production  by  hand  in  the  United  States  amounted  to 
2,780,665,969  dollars,  or,  putting  roughly  5  dollars 
(instead  of  4-85  dollars)  to  the  pound,  £556,000,000. 
The  amount  paid  in  wages  in  the  same  year  was 
620,467,474  dollars  or,  say,  £125,000,000;  and  the 
total  product  amounted  to  8,o85. 860,383  dollars  or 
£677,170,000.  The  number  of  the  workers  employed 
was  2,052,996  ;  the  horse-power  re] )resented  2,346,142 
horses  ;  and  the  number  of  factories  and  work- 
shops amounted  to  252,148,  representing  11,027 
dollars  or  £2,205  as  the  capital  of  each  establish- 
ment. 

Thus,  in  1870,  2,053,996  labourers  produced  a  total 
value  of  £677.170,000  or  £300  a  head,  receiving  in 
wages  620,467,474  dollars  or  £125,000,000,  represent- 


I40  COMMERCIAL  CRISES  OF 


iuo-  £60  a  head,  the  profit  being  529,045,688  dollars 
or  £106,000,000. 

In  1880,  however,  the  total  capital  in  these  same 
industries  had  increased  to  £925,000,000  and  the  total 
paid  in  wages  to  £190,000,000.  The  entire  product 
had  increased  to  a  value  of  £1,074,000,000,  the  num- 
ber of  the  workers  employed  to  2,732,595,  and  the 
horse-power  to  3,410,837.  There  were  in  1880,  how- 
ever, no  more  tlian  253,852  establishments  with  a 
capital  of  £3,600  each,  and  every  worker  produced 
1798  dollars  or  £360  in  the  year,  of  which  he  obtained 
nearly  £70  in  wages. 

Thus,  in  this  decade,  the  productive  power  of  these 
American  industries  had  increased  58  per  cent,  while 
the  number  of  the  workers  had  increased  only  33  per 
cent.,  and  the  number  of  establishments  had  increased 
inappreciably  in  proportion  to  the  capital  employed. 
Therefore  it  is  manifest  that  in  America,  as  in  Great 
Britain,  as  the  official  statistics  prove,  the  power  of 
production  is  increasing  in  a  far  higher  degree  than 
the  increase  in  the  number  of  the  workexs  employed. 
Consequcntl}^  what  is  defective  in  the  existing  system 
of  manufacturing  commodities  is  the  co-ordination  of 
the  two  parts,  the  living  and  the  dead  productive 
forces.  In  this  very  period,  1870  to  1880,  the  United 
States  passed  through  a  serious  crisis  with  its  following 
years  of  stagnation  and  depression,  proving  once  more 
that  the  wealth  of  the  country  for  the  well-to-do  may 
be  growing,  even  while  the  workers  are  in  many 
branches  of  trade  out  of  work  and  starving. 

How  soon  the  exhibition  of  the  truth  may  induce 
all  classes  to  endeavour  to  comprehend  the  facts  and 


J  HE  NINETEENTH  CENTURY.  141 

to  solve  the  problem  either  in  co-operation  or  in  con- 
flict depends  upon  the  occurrence  of  economical 
developments,  of  which  none  can  foresee  exactly  the 
times  and  seasons. 


142  COMMERCIAL  CRISES  OF 


CHAPTER  IX. 

THE   CRISIS   OF    1890. 

With  the  lisincy  C3'cle  of  trade  which  began  at  the 
end  of  1887  or  the  commencement  of  1888  we  ap- 
])roach  the  last  crisis  of  the  century.  The  long  period 
of  low  prices,  accompanied  in  Great  Britain  as  well 
as  in  other  countries  by  a  low  rate  of  discount,  was 
felt  to  be  coming  to  an  end,  when  it  was  observed 
that  the  stocks  of  raw  material  and  metals  had  run 
down  to  so  low  a  point  that  even  the  slightest  addi- 
tional demand  would  bring  about  a  rise  of  prices. 
Tlie  old  adage  that  "  John  Bull  can  stand  almost 
anything  but  he  can't  stand  2  per  cent.,"  had  certainly 
not  been  borne  out  during  the  five  years.  He  had 
stood  a  low  rate  of  discount  without  rushing  into  any 
new  or  doubtful  enterprises  on  a  large  scale.  That  a 
vast  deal  of  business  had  been  done  in  spite  of  the 
bad  times,  at  a  profit  to  somebody,  was  proved  con- 
clusively by  the  dividends  which  were  paid  on  the 
shares  of  all  the  good  banks  in  London  and  the 
country,  as  well  as  by  the  steady  rise  in  income-tax 
returns  under  the  head  of  profits  on  trade,  etc.  This 
was  the  more  surprising,  inasmuch  that  agiiculture 
as  a  profitable  industry  was  going  from  bad  to  worse 
all  the  time,  and  the  numbers  employed  in  agriculture, 
which  had  fallen  from  2,000,000  in  18G1  to  1,403,000 


THE  NINE  1 EENTH  CENT  UK  Y.  143 

in  1881,  were  still  further  declining.  Moreover,  the 
prices  of  all  commodities  being  so  very  low,  this 
income  represented  a  purchasing  power  of  certainly- 
more  than  15  per  cent,  above  that  which  it  would 
have  represented  in  the  previous  decade,  thus  afford- 
ing the  comfortable  classes  a  larger  margin  for  saving 
than  they  could  have  relied  upon  having  when  prices 
were  higher  and  trade  brisker.  No  greater  proof 
could  be  afforded  of  the  elasticity  of  the  capitalist 
system  for  those  who  are  already  well-to-do  than  the 
figures  of  income  and  profits  for  the  income-receiving 
class  in  Great  Biitain  and  Ireland  during  that  period 
from  1883  to  1887;  when  every  industry  was  de- 
pressed so  far  as  the  amount  realised  for  commodities 
was  concerned ;  when,  as  has  been  seen,  many  thou- 
sands of  workers  were  out  of  employment,  and 
Ireland  was  suffering  from  famine.  For  investment 
of  savings  was  going  on  in  the  Colonies,  in  India,  and 
in  South  America,  as  well  as  in  the  United  States  and 
elsewhere,  upon  a  scale  which  would  have  denoted  a 
high  point  of  prosperity  in  any  other  country.  But  the 
savings  of  the  United  Kingdom  in  an  ordinary  year 
being  estimated  at  £200,000,000,  out  of  a  total  gross 
income  of  £1,300,000,000,  any  less  investment  in  the 
year  betokened  accumulation.  When,  therefore,  the 
tide  began  to  turn,  the  rush  was  likely  to  be  very 
vigorous. 

The  special  feature  of  this  period  of  inflation,  which 
lasted  for  nearly  three  years  prior  to  the  crash  of  1890, 
was  the  establishment  of  trusts,  and  combinations, 
and  "corners,"  and  promotion  companies,  on  similar 
lines  to  those  adopted  in  America.    The  word  "  trust," 


144  COMMERCIAL  CRISES  OF 

however,  has  not  the  same  signification  on  both  sides 
of  the  Atlantic,  nor  does  it  always  mean  the  same  sort 
of  organisation  either  in  the  United  States  or  in 
England.  Trusts  in  England  are  for  the  most  part 
nominally  investment  companies,  which  assume  to  be 
able  to  average  an  investor's  risks  better  than  he  can 
do  so  for  himself.  Really,  they  are  either  companies 
specially  created,  to  dispose  of  the  unmarketable 
securities  which  financiers  in  the  city  are  unable  to 
induce  the  public  to  purchase  in  any  other  way ;  or 
they  are  mere  agencies  for  the  promotion  of  other 
companies,  which  the  actual  promoters  do  not  wish 
for  any  reason  to  figure  in  under  their  own  names. 
There  are  exceptions,  of  course,  but  the  majority  of 
the  trusts  which  have  grown  up  in  the  city  of  London 
during  the  last  few  years  come  under  one  or  other  of 
these  heads.  Seeing  that,  as  a  rule,  these  trusts  do- 
not  publish  full  lists  of  the  securities  in  which  they 
invest,  it  is  possible  for  all  sorts  of  petty  frauds  to  be 
committed,  and  for  money  received  to  be  utterly 
thrown  away  upon  worthless  enterprises,  and  still 
that  the  public  at  large  should  imagine  that  the 
directors  are  doing  a  most  respectable  and  responsible 
business. 

Another  and  more  important  change  in  regard 
to  the  city  of  London  is  the  ever-increasing  prepon- 
derance of  the  great  joint-stock  banks  in  comparison 
with  the  Bank  of  England.  Such  banks  as  the 
London  and  Westminster,  the  National  Provincial, 
the  London  Joint-Stock,  and  many  more,  with  their 
millions  of  deposits  and  their  enormous  business  have 
become    practically  supreme   in    the    ordinary  daily 


THE  NINETEENTH  CENTURY.  145 

affairs  of  London.  At  the  same  time,  the  whole  of 
their  ultimate  reserve  to  meet  troubled  times  still  lies 
at  the  Bank  of  England,  and  that  reserve  has  lately 
been  considered  insufficient  and  dangerous.  Whether 
it  is  insufficient  or  not  will  probably  never  be  tested 
until  a  complete  crash  does  come.  People  in  the  city 
are  exceedingly  conservative,  and  slow  to  meet  chang- 
ing conditions.  Their  regular  business  does  not 
encourage  the  exercise  of  foresight  to  any  great 
extent.  Indeed,  it  is  commonly  said  that  a  man  who 
attempts  to  see  farther  than  the  currency  of  a  three 
months'  bill  is  certain  to  lose  his  money.  What  each 
has  to  do  is  to  make  the  best  of  the  circumstances 
immediately  around  him,  and  as  one  of  those  circum- 
stances is  that  the  Bank  of  England  should  hold  for 
the  joint-stock  banks  an  absurdly  small  reserve  in 
proportion  to  an  enormous  business,  the  general  tone 
about  that  as  about  other  matters  is,  "  Well,  it  will 
last  my  time." . 

To  those  who  are  not  so  experienced  in  business, 
the  mere  theorists  who  regard  the  matter  from 
without,  it  does  seem  somewhat  ridiculous  that 
the  rate  of  discount  at  the  Bank  of  England,  which 
guides  the  rate  for  bills  in  actual  daily  business  and 
not  merely  for  advances  on  securities,  should  be  moved 
up  and  down  like  mercury  in  a  tube,  because  a  few 
hundred  thousands  or  millions  worth  of  gold  goes  into 
or  is  taken  out  of  the  bank  coffers.  Still  more  ridi- 
culous to  the  lay  mind  do  these  fluctuations  appear  to 
be  when  the  total  trade  of  the  country  is  taken  into  con- 
sideration, and  the  fact  that  the  gold  withdrawn  or  de- 
posited forms  but  a  small  fraction  of  one  day's  opera- 


146  COMMERCIAL  CRISES  OF 

tions  at  the  Clearing  House.  The  general  uncertainty 
and  doubt  due  to  such  a  state  of  things  it  is  needless 
to  enlarge  upon.  Twenty  years  ago  an  able  and  coov 
writer,  who  was  certainly  no  alarmist,  pointed  out  the 
increasing  danger  of  the  situation.  Though  twenty 
years  have  passed,  Mr.  Bagehot's  fears  have  not  been 
realised,  and  it  is  natural  to  suppose  that  what  has 
been  avoided  in  the  past  will  be  avoided  in  the  future. 
But  if,  as  seems  certain,  the  whole  capitalist  system  is 
about  to  undergo  a  crucial  transformation,  it  would  be 
well  that  as  the  State  (which  always  has  come  to  the 
aid  of  the  Bank  of  England  in  critical  times,  and  will 
certainly  come  to  its  aid  in  times  still  more  critical),  is 
directly  interested  in  bringing  about  a  peaceable  and 
orderly  change,  a  careful  examination  should  be  made 
of  the  position  from  the  point  of  view  of  the  entire 
community  as  well  as  from  that  of  the  banking  and 
business  world. 

For  banking  is  by  no  means  the  only  department 
of  our  present  system  in  which  changes  of  kind  as 
well  as  of  degree  are  going  on.  While  private  banks 
are  being,  all  of  them,  forced  to  combine  to  a  greater 
or  less  extent,  and  to  form  limited  companies,  private 
business  firms  are  being  more  and  more  driven  in  the 
same  direction.  But  this  extension  of  the  company 
form  of  industrial  enterprise,  quite  does  away  with  any 
personal  relation  between  employed  and  employer,  and, 
besides  that,  not  unfrequently  turns  the  business  from 
a  national  into  an  international  concern.  The  com- 
pany form  of  industrial  enterprise,  that  is  to  say, 
beginning  with  water-works,  canals,  railways,  cable 
lines,  and  other  undertakings,  which  required  far  more 


THE  NINETEENTH  CENTURY.  I47 

capital  than  any  single  individual  or  firm  could  com- 
mand, has  now  absorbed,  or  is  in  process  of  absorbing 
businesses  which  seemed  to  depend  for  their  success 
upon  the  zeal  and  capacity  of  the  individual  heads  of 
the  house,  and  upon  the  reputation  which  the  firm's 
name  carried  with  it  in  the  home  and  foreign  markets. 
Now,  the  name  is  retained  by  the  company,  and  the 
partners  form,  for  a  time  at  any  rate,  a  portion  of  the 
Board  of  Direction ;  but  the  main  responsibility  rests, 
as  in  the  case  of  a  great  railway  or  a  great  bank,  on 
the  manager,  or  managing  director,  who  receives  a 
large  salary  for  his  services,  and  may  or  may  not  be  a 
large  shareholder. 

The  shareholders,  of  course,  have  no  real  control 
over  the  business.  Their  function  is  confined  to 
holding  their  shares  with  satisfaction  when  they 
receive  good  dividends  and  their  shares — theirs  to- 
day, somebody  else's  to-morrow — are  quoted  at  a 
high  price  ;  with  grumbling  when  dividends  fall  off, 
and  their  shares  are  reduced  in  saleable  value.  Every 
company  of  this  sort  which  is  formed  extends  the 
area  of  Stock  Exchange  transactions  and  introduces 
the  element  of  mere  gamblhig  into  purely  industrial 
business.  A  company  has  no  responsibility  in  a  moral 
sense,  and  the  old  idea  of  the  individual  sagacity  of 
the  farseeing  employer,  who,  being  the  fittest,  sur- 
vived in  the  furious  competition  of  the  market,  mani- 
festly cannot  be  held  to  apply  to  huge  establishinents 
with  a  vast  number  of  shareholders ;  the  largest 
owners  being,  perhaps,  men  and  women  who  never 
were  within  two  hundred  miles  or  more  of  the  pro- 
perty   which   by   legal   convention   they  own.      The 


148  COMMERCIAL  CRISES  OF 

theoretical  and  practical  effect  of  all  this  development 
of  companies  will  be  seen  in  the  sequel. 

Banks,  mercantile  and  shipping  companies,  and  great 
credit  establishments,  have  long  been,  by  the  very 
nature  of  their  business,  international  to  a  greater  or 
less  degree.  But  the  development  of  industrial  com- 
panies having  branches  of  their  industry  in  different 
countries  is  comparatively  recent.  Now,  however,  it 
is  by  no  means  unusual  for  great  English  industrial 
companies  to  have  factories  and  workshops  and  mills 
and  shipyards,  created  by  English  capital  and  owned 
by  English  shareholders,  in  foreign  countries.  Thus, 
Armstrong,  Mitchell  &  Co.  have  works  in  Italy;  Pal- 
mer &  Co.  have  works  in  Spain;  Cammells  &  Co.  have 
works  in  Russia  and,  I  believe,  in  America ;  Coats  & 
Co.  have  mills  in  America  for  sewing  cotton,  and  so 
on  and  so  on  ;  while,  on  the  other  hand,  foreign  sew- 
ing-machine, and  type-writing,  and  watch  companies 
establish  branches  for  production  as  well  as  for  distri- 
bution here.  All  this  shows  how  the  national  form  of 
production,  notwithstanding  all  tariff  regulations,  is 
giving  way  slowly  to  the  international  form,  capital 
being,  of  course,  utterly  indifferent  to  any  considera- 
tions of  patriotism  or  morality,  profit  being  its  sole  end. 

In  the  same  way  all  raw  materials,  metals,  etc., 
being  now  bought  and  sold  by  reference  to  the  price 
ruling  in  the  world-market,  it  is  quite  impossible  for 
any  group  of  men  who  may  be  desirous  of  making  a 
successful  condjination  to  purchase  and  hold  all  the 
stocks  of  any  article,  whose  price  they  think  to  raise 
by  reducing  the  temporarily  available  supply,  unless 
they  take  full  account  of  the  production  in  all  parts 


THE  NINETEENTH  CENTURY.  T49 

of  the  globe.  This  is  particularly  the]  case  with 
respect  to  articles  of  small  bulk  and  weight  in  pro- 
portion to  their  average  price.  Now,  when  the 
shrinkage  of  prices  had  continued  so  long  that,  owing 
to  increased  demand  and  reduction  of  supply,  tlie 
stocks  had  been  brought  below  the  level  which  the 
probable  demand  in  the  near  future  seemed  to  require 
for  its  satisfaction,  it  was  certain  that  a  rise  of  price 
would  follow.  Of  all  the  metals  in  use,  copper  had 
fallen  perhaps  as  heavily  as  any,  except  pig-iron,  in 
relation  to  the  price  in  gold  which  rules  the  market 
of  the  world.  So  heavy  had  been  the  fall  in  the 
prices  of  all  metals  since  the  decade  1871  to  1881, 
that  all  sorts  of  arguments  were  made  to  show  that 
it  was  the  scarcity  of  gold  and  not  the  increased 
power  of  production  which  had  brought  about  the 
shrinkage.  But  now  a  recovery  seemed  possible,  and 
a  plan  was  formulated  in  Paris  to  make  a  "corner" 
in  copper  after  the  pattern  of  the  monopoly  in  petro- 
leum established  by  the  Standard  Oil  Company  in  the 
United  States,  and  similar  monopolies,  which  had 
been  very  successful  for  those  who  projected  them 
and  carried  them  out. 

The  fact  that  such  a  scheme"  should  be  enter- 
tained, and  its  realisation  attempted  by  powerful 
groups,  showed  that,  in  the  opinion  of  the  slirewdest 
calculators,  the  time  was  at  hand  for  another 
"  boom."  They,  therefore,  set  to  work  in  Paris  to 
obtain  control  of  the  supply  of  copper  in  sight,  and 
to  limit  the  production  by  purchasing  a  limited 
product  from  certain  great  mines  at  a  good  price, 
on   condition    that    only   a   certain    amount    should 


i5o  COMMERCIAL  CRISES  OF 

be  produced.  They  fixed  their  price  at  £70  a  ton, 
the  price  of  copper  when  operations  commenced  being 
a  little  over  £40  a  ton.  That  the  whole  copper  in- 
dustry should  be  deranojed  by  this  action  affected,  of 
course,  the  speculators  not  at  all.  But  they  had  mis- 
calculated the  market  themselves.  Without  going  into 
tiie  details  minutely,  it  is  sufficient  to  say  that  had 
they  fixed  the  price  at  £55,  or  possibly  even  £60  a  ton, 
they  might  have  succeeded  in  carrying  out  their  plan 
to  their  own  profit.  The  Chilian  mines,  for  instance, 
cannot  be  profitably  worked  when  copper  falls  below 
£55  a  ton.  But  £70  a  ton  was  not  only  a  price  suffi- 
cient to  induce  the  opening  of  these  and  other  mines, 
but  it  was  a  price  high  enough  to  persuade  holders  of 
copper  in  various  forms  to  melt  it  down,  and  to  supply 
its  place  with  a  cheaper  metal  wherever  possible.  So, 
within  a  very  short  time,  it  was  discovered  that,  in 
order  to  keep  up  a  price  permanently  so  much  in  ex- 
cess of  the  permanent  cost  of  production  as  £70,  it 
would  be  necessary  to  buy  up  all  the  copper  mines  on 
the  planet,  shut  down  fully  half  of  them  altogether, 
and  limit  the  product  of  the  remainder.  Thereu})on, 
down  came  the  whole  edifice,  and  one  of  the  most 
important  of  the  French  credit  establishments — the 
Comptoir  d'Escompte — proved  to  have  been  so  deeply 
involved  that  it  was  practically  ruined,  though  bol- 
stered up  and  set  going  again  in  another  shape  after 
the  suicide  of  the  man  most  responsible  for  its  collapse. 
The  Salt  Union,  which  was  subscribed  many  times 
over,  is  an  instance  of  a  similar  attempt  to  limit  com- 
petition and  permanently  raise  the  price  of  a  commo- 
dity, this  time  of  a  necessary  of  life  to  the  consumer,  by 


THE  NINE  TEE  NTH  CENTUR  Y.  151 

a  convention  between  the  producers.  At  the  time 
when  this  combination  was  launched,  the  parties  to  it, 
producers  and  promoters  alike,  were  for  the  most  part 
in  a  very  bad  way.  The  producers  had  been  steadily 
losing  money,  owing  to  the  low  prices,  for  many  years, 
and  some  of  them  were  under  absolute  threat  of  sale 
from  the  bankers  to  whom  they  owed  money.  Tlie 
Union  was  organised  and  brought  out  successfully,  the 
wholesale  price  of  salt  was  forced  up  without,  of  course, 
the  slightest  increase  of  wages,  and  the  manufacturers 
who  were  wise  enough  to  sell  their  shares  in  time 
cleared  themselves  of  their  liabilities,  while  the  public 
had  the  privilege  of  paying  about  £9  a  ton  retail  for 
salt,  which  it  costs  about  6s.  a  ton  to  produce.  The 
wholesale  price  has  now  fallen  prodigiously^,  and  the 
whole  Union  seems  likely  to  follow  the  course  of  the 
"  corner  "  in  copper ;  though  probably  the  public  will 
long  continue  to  pay  the  inflated  prices  for  small 
quantities  for  the  benefit  of  the  middleman. 

These  two  instances  and  the  constant  endeavours 
made  to  form  "  pools  "  in  the  iron  and  other  industries, 
show  that  capitalists  are  beginning  to  try  to  limit 
that  competition  which  they  have  hitherto  upheld  as 
beneficial,  in  the  same  way  that  competing  banks  agree 
upon  a  common  ]-ate  of  interest,  and  railways  upon  a 
common  rate  of  transport  to  the  same  terminus. 

To  return  to  the  main  events  prior  to  the  great 
crisis  of  1890.  Throughout  the  years  1888  and  1889 
and  the  early  part  of  1890,  there  was  a  general  re- 
covery in  every  department  of  trade.  American 
breweries  and  industrial  enterprises,  Argentine  loans 
aud  railway  concessions,  Mexican  railways  and  mines, 


COMMERCIAL  CRISES  OF 


United  States  railway  issues,  Colonial  loans,  were  all 
floated  ofl'  with  ease,  in  addition  to  the  large  number 
of  English  breweries  and  industrial  businesses  which 
were  turned  into  companies  and  occasioned  transfers 
of    capital    during    the    same    period.       Promoters, 
stock-brokers,    contractors,    engineers,    lawyers,   and 
printers  were  all  doing  a  splendid  business,  and  the 
successful  issues  resulted  in  an  increase  of  orders  to 
factories  and  works  which  were  already  busier  than 
they  had  been  for  years  before.     As  business  improved 
freights  began  to  rise,  and  the  idle  tonnage  was  ab- 
sorbed, until  instead  of  the  Thames  and  the  Tyne, 
the     Clyde,    the     Mersey,     the     Humber,    and    the 
Tees  being  blocked  with  vessels   for  which  no  em- 
ployment could  be  found,  everything  in  the  shape  of 
a  steamer  that  could  pound  along  at  nine  or  ten  knots 
an  hour  was  chartered,  and  orders  were  being  given 
in  every  ship-yard  for  larger  and  still  speedier  vessels 
to  deal  with   the   growing   trade.     Good  times  had 
come  once  more,  and  once  more  that  same  workino- 
population  which  it  had  been  proposed  to  ship  off  to 
the  Colonies  as  mere  human  surplusage  was  absorbed 
into  the  capitalist  workshops  and  was  even  working 
overtime.     The  comparison  in  this  respect  between 
1886  or  1887  and  1889  ought  alone  to  be  sufficient  to 
convince  the  least  observant  of  the  absurdity  of  the 
current  theories  as  to  the  causes  of  "  over-population  " 
and  "  bad  times  "  for  the  mass  of  the  people.     The  im- 
provement was   felt  in   every  direction,  and   among 
other  symptoms  of  well-being  was  the  reduction  of 
taxation  and  a  lowering  of  the  rate  of  interest  paid  on 
that  monstrous  burden — the  national  debt. 


THE  NINETEENTH  CENTURY.  153 

South  America  and  South  Africa  were  the  two 
countries  which  chiefly  participated  in,  and  helped  on, 
this  period  of  inflation,  which  was  as  short  as  it  was 
extraordinary.  The  history  of  the  loans  to  the 
Argentine  Republic,  now  that  it  has  become  history, 
is  surprising  indeed.  A  country  which  had  a  national 
debt  of  £10,000,000  in  1875,  contrived  to  raise  it  to 
£70,000,000  in  1889.  This,  in  addition  to  vast  sums 
raised  in  Europe,  on  provincial  credit,  to  carry  out  the 
innumerable  railway  concessions  which  were  offered  to, 
and  accepted  by,  the  eager  investors  in  "  guaranteed  " 
enterprises.  All  the  money  markets  were  competing 
with  one  another  for  a  share  of  these  good  things, 
London,  Paris,  Brussels,  Berlin,  each  was  ready  to 
outbid  the  other  for  the  privilege  of  taking  up  ven- 
tures and  floating  loans  winch,  at  any  other  time, 
would  have  been  regarded  as  very  doubtful  security, 
when  the  nature  of  the  country,  the  cliaracter  of  the 
population,  and  the  instability  of  its  political  in- 
stitutions were  carefully  considered.  They  were  not 
considered,  however,  and  the  investors  of  Great  Britain, 
France,  Belgium,  and  Germany  had  another  oppor- 
tunity of  learning  the  value  of  Government  guarantees 
south  of  the  United  States. 

But  at  first  and  for  some  time  all  went  well,  especi- 
ally with  those  to  whom  the  loans  were  made.  Buenos 
Ayres  surpassed  every  other  city  in  its  luxury,  extra- 
vagance, and  wholesale  squandering  of  wealth.  There 
was  literally  no  limit  to  the  excesses  of  the  wealthier 
classes.  While  money,  luxuries,  and  material  poured 
in  on  the  one  hand,  crowds  of  immigrants  from  Italy 
and  other  countries  flocked  in  to  perpetuate  the  pros- 


154  COMMERCIAL  CRISES  OF 

perity  of  the  new  Eldorado  of  the  South.  Railways, 
docks,  tramways,  water-works,  gas-works,  public  build- 
ings, mansions,  all  were  being  carried  on  at  once  in  hot 
haste ;  and  British  and  foreign  contractors,  engineers, 
and  men  of  business  did  their  best  to  increase  the 
general  eagerness  to  commence  new  undertakings. 

But  the  facts  are  fresh  in  the  minds  of  everyone. 
The  character  of  the  houses  which  took  charge  of  the 
loans  in  London  and  on  the  Continent  was  so  hicch 
that  nobody  could  for  the  time  doubt  that  all  was 
well.  That  the  Barings,  the  Murrietas  and  others 
were  as  careless  and  as  greedy  as  houses  of  less  name 
and  fame,  was  not  to  be  believed.  It  is  a  curious 
fact,  as  showing  how  little  the  real  truth  was  gene- 
rally appreciated,  notwithstanding  the  warnings  con- 
stantly given  by  the  Statist  newspaper,  that  the  last 
railway  loan  successfully  floated  prior  to  the  crash 
was  subscribed  for  no  less  than  eleven  times  over  in 
London.  And  Uruguay  gives  only  a  repetition  of 
the  methods  of  the  Argentine  Republic  on  a  smaller 
scale. 

The  real  significance  of  this  to  English  industry  is 
not  always  appreciated  fully.  The  money  form  of 
the  loans  disguises  the  fact  that  much  of  what  is 
lent  to  the  Argentine  Republic,  Uruguay,  Brazil, 
Australia,  etc.,  does  not  reach  the  borrowers  in  the 
shape  of  cash  at  all.  The  loan  takes  the  form  of  works 
or  manufactures  of  some  sort,  such  as  rails,  bridges, 
pontoons,  articles  of  luxury,  linen,  cloth,  etc.,  which 
means  profit  for  the  manufacturers  and  employment 
for  the  workers  of  England.  But  trade  of  this  kind, 
fostered  by  loans  from  the  country  whose  goods  are 


THE  NINE  TEE  NTH  CENTUR  V.  1 5  5 

ordered,  must,  in  the  very  nature  of  the  case,  be  pre- 
carious. As  the  loans  fall  off,  owing  to  the  security- 
having  been  covered  and  no  margin  remaining,  the 
trade  falls  off  too,  and  cannot  revive  until,  if  the  pro- 
duce of  the  loans  has  been  spent  in  development,  a 
natural  exchange  of  the  products  of  the  two  countries  is 
established.  So  long  as  the  period  of  inflation  lasted, 
however,  business  was  good,  the  workers  were  fully 
employed,  and  could  strike  for  higher  wages  with 
good  hope  of  success  for  the  time  being,  as  the  East 
End  of  London  dockers  did  and  many  others.  Prices 
and  wages  had  once  more  risen  to  something  like 
their  old  levels ;  orders  could  not  be  executed  in  con- 
sequence of  the  press  of  business — rails,  for  example, 
could  not  be  had ;  the  speculation  had  kept  pace 
with  the  general  prosperity ;  and  yet  all  seemed  so 
sound — for  the  Argentine  and  Uruguay  are  rich  coun- 
tries— that  people  thought  the  market  in  the  spring 
and  summer  of  1890  might  still  hold  out  for  another 
tv/elve  or  eighteen  months,  though  that  South  America 
was  over-borrowing  was  universally  admitted.  As  a 
matter  of  fact,  the  collapse  had  even  then  begun ; 
fears  of  a  drain  of  gold  to  South  America,  as  the 
premium  on  gold  began  to  rise  rapidly,  scared  shrewd 
observers  ;  and  the  names  of  great  financial  firms  wore 
whispered  about  the  city  as  being  in  serious  difii- 
culties. 

Those  who  remember  the  collapse  of  Messrs.  Over- 
end,  Gurney  &  Co.  twenty-six  years  ago  say,  that 
to  men  brought  up  in,  the  City  where  this  great  firm 
had  enjoyed  unbounded  influence  and  credit  for  two 
generations,  it  seemed  inconceivable  that  the  house 


156  COMMERCIAL  CRISES  OF 

should  ever  fall,  even  when  it  was  generally  known 
that  its  affairs  were  somewhat  in  disorder.  When  it 
did  fall,  a  hug-e  blank  was  occasioned  which  has  never 
since  been  filled.  All  that  men  of  business  felt  about 
Messrs.  Overend,  Gurney  &  Co.  in  185G,  and  more 
than  all,  was  felt  in  the  city  of  London  in  1889  about 
the  firm  of  Messrs.  Baring,  Bros.  &  Co.  Lord  Revel- 
stoke,  the  head  of  the  house,  though  an  exceedingly 
arbitrary  man,  was  looked  upon  as  the  first  financier 
in  the  city.  His  ability,  organising  power,  and  fore- 
sight were  extolled  by  all.  Messrs.  Baring  had  just 
floated  Messrs.  Guinness's  brewery  as  a  Limited  Com- 
pany with  extraordinary  success  and  profit  to  the 
firm,  and  had  taken  the  'pas  of  Messrs.  Rothschild  in 
the  matter  of  financing  the  Manchester  Ship  Canal. 
Their  mercantile  business  brought  them  in  enormous 
profits  yearly,  and  their  name  and  credit  were  at  this 
time  the  first  in  the  world.  There  was  a  feeling  of 
satisfaction  throughout  the  country  that  a  purely 
English  house  should  stand  so  high  at  a  time  when 
German  Jews  held  the  leading  place  in  nearly  every 
great  continental  city. 

And  yet,  at  the  very  time  when  this  was  the  general 
feeling,  the  Barings  were  allowing  themselves  to  be 
cajoled  into  the  acceptance,  in  conjunction  with  their 
syndicate,  of  some  of  the  worst  financial  enterprises 
that  any  third-rate  firm  of  financial  adventurers  ever 
tried  to  foist  upon  the  public  ;  and  were  straining 
their  credit  to  an  extent  which  even  their  capital  and 
profits  could  not  stand.  The  boasted  ability  of  the 
greatest  men  in  the  city  was  again  tried  and  found 
wanting,  and  Lord  Revelstoke  allowed  himself  to  be 


THE  NINETEENTH  CENTURY.  157 

completely  bamboozled  by  an  American  adventurer, 
whose  sole  aim  and  object  was  to  make  commissions 
for  himself.  Tlie  story  of  Moses  and  the  gross  of 
green  spectacles  was  told  again  in  Bishopsgate  Street 
to  the  tune  of  tens  of  millions  of  pounds  sterling. 

Suddenly  a  heavy  fall  in  stocks,  in  which  the 
Barings  were  known  to  be  specially  interested  alike 
as  owners  and  agents,  and  a  pouring  of  Consols  upon 
a  depressed  market,  informed  the  public  of  what  the 
private  letter-books  of  the  city,  if  they  could  be 
thrown  open,  would  show  was  known  to  many  firms 
long  before.  Then  Russia  was  withdrawing  gold 
from  the  great  house  at  the  same  time;  and  it  shortly 
became  known  that,  unless  exceptional  steps  were  at 
once  taken,  another  18G6  panic  would  be  let  loose 
upon  the  city.  For  the  bank  rate  of  discount  w^as 
rapidly  advancing ;  the  great  joint-stock  banks  were 
calling  in  their  loans  ;  gold  was  flowing  out  from  the 
Bank  of  England,  which  itself  was  reported  to  hold 
£4,000,000  of  the  Barings'  acceptances  ;  and  a  fourth 
suspension  of  the  Bank  Act  of  1844  was  regarded  as 
inevitable  if  matters  were  allowed  to  take  their 
ordinary  course.  Then  it  was  that  the  governor  of 
the  Bank  of  Eno-land,  having  assured  himself  of  State 
support  in  case  of  need,  adopted  that  plan  of  bolster- 
ing up  rottenness,  in  the  interest  of  the  higher  grade 
of  financiers,  of  which  the  French  had  already  given  us 
more  tlian  one  instance. 

A  guarantee  fund  was  formed,  in  which  the  Bank  of 
England  took  the  lead,  and  eveiy  bank  or  firm  of  any 
note  in  the  city  joined,  to  ensure  the  meeting  of  the 
acceptances  of  Baring  Brothers  &  Co.  to  the  extent  of 


158  COMMERCIAL  CRISES  OF 

£21,000,000 ;  gold  to  the  amount  of  £3,000,000  was 
borrowed  by  the  Bank  of  England  through  the  Roths- 
childs from  the  Bank  of  France,  and  more  was  ob- 
tained from  Russia ;  the  Barings'  ordinary  business 
was  turned  into  a  limited  company,  and — several  other 
important  firms  went  into  a  sort  of  limited  liquidation. 
It  was  all  thought  to  be  a  great  stroke  of  genius  at 
the  time,  and  Mr.  Lidderdale  practically  received  the 
thanks  of  the  Government,  and  was  presented  with 
tlio  freedom  of  the  city  of  London.  The  general 
opinion  is  not  quite  so  favourable  now,  and  it  is  quite 
possible  that,  when  the  circumstances  come  to  be  re- 
viewed in  the  dry  light  of  history,  the  Baring  crisis 
of  1890,  and  the  way  in  which  it  was  met,  will  be 
cited  as  an  example  of  the  break-down  of  capitalism 
in  the  department  of  high  finance. 

That  the  whole  crisis  will  be  a  permanent  record 
of  the  imbecility  of  English  investors  there  can 
already  be  no  doubt  whatever.  For  those  who  held 
Argentine  bonds,  to  which  they  had  subscribed  on 
the  faith  of  representations  made  '  by  first-rate 
financial  houses  that  had  secured  enormous  profits 
out  of  the  issues,  actually  allowed  the  representa- 
tives of  these  very  houses  to  form  a  financial  caucus, 
specially  constituted  to  sacrifice  the  public  inter- 
ests of  investors  to  their  own  private  necessities  ; 
granting  the  Argentine  Government  an  unasked-for 
delay  in  paying  interest  for  three  whole  years,  on 
condition  that  they,  the  magnates  of  the  money  market, 
should  be  relieved  from  their  obligations  in  connec- 
tion with  the  rotten  scheme  for  the  water-supply  of 
the  city  of  Buenos  Ayres.     Not  a  single  bondholder  or 


THE  NINETEENTH  CENTURY.  159 

shareholder  was  represented  on  this  great  committee, 
of  which  Lord  Rothschild  was  the  chairman,  and  the 
whole  affair  was  arranged  to  the  ruin  of  the  investors 
so  as  to  suit  the  pockets  of  those  who  sat  with  him 
round  the  table. 

Since  then  the  city  of  London  has  been  in  what 
may  be  called  a  state  of  permanent  though  suppressed 
panic.  What  is  much  more  important,  trade  has 
steadily  fallen  off,  and  prices  have,  of  course,  as 
steadily  shrunk.  The  exports  to  South  America  have 
gone  down  to  such  an  extent  that  one  great  line  of 
freight-carrying  steamers,  Messrs.  Lamport  &  Holt's, 
has  been  practically  without  freight  from  this  country 
for  months  past.  The  stagnation  in  the  export  trade, 
due  to  this  South- American  crisis;  to  the  cessation  for 
the  time  being  of  those  Australian  loans  which  like- 
wise called  for  English  produce;  to  the  M'Kinley  tariff 
in  tlie  United  States,  which  has  ruined  the  rough 
woollen  trade  of  Bradford  and  the  tin-plate  trade  of 
South  Wales;  to  the  increasing  competition  of  foreign 
countries  in  the  neutral  markets ;  and  to  the  disap- 
pointments in  connection  with  South  and  Central 
Africa — this  stagnation,  though  it  may  be  brightened 
by  temporary  gleams  of  prosperity,  threatens  to  bo 
for  a  long  time  very  prejudicial  to  the  interests  of  the 
mass  of  the  people. 

During  the  short  but  sharp  inflation  of  1SS7  to 
1890  the  workers  had  been  able  to  obtain  advances  of 
wages  in  many  trades;  and  strikes  for  invr.-oved  con- 
ditions of  labour,  of  which  the  dockers'  strike  was 
the  most  famous,  had  been  the  rule  rather  than  the 
exception.     But  mere  strikes  or  Trade  Union  combin- 


i6o  COMMERCIAL  CRISES  OF 

ations  can  no  more  change  or  influence  the  course  of 
international  commerce  than  a  lecture  on  economics 
to  a  Zulu  tribe.  So  long  as  the  sole  object  of  the 
production  of  wealth  is  the  creation  of  surplus-value 
and  profit,  so  long  will  the  periods  of  bad  trade  follow 
periods  of  inflation,  and  so  long  will  the  workers  who 
imagine  that  they  have  secured  permanent  advantages 
to-day  find  that,  if  dependent  for  the  retention  of 
those  advantages  merely  on  their  own  organisations, 
they  have  laid  up  for  themselves  uncertainty  and 
disappointment  for  to-morrow. 

Already  the  counter  effects  of  the  crisis  of  1890  are 
making  themselves  felt  in  the  money  markets  and 
industrial  centres  of  France,  Germany,  Belgium,  and 
other  countries.  The  harmful  conditions  which  per- 
manently weigh  upon  the  European  situation — the 
vast  loans  raised  for  war  purposes  superadded  to  the 
already  excessive  indebtedness;  the  withdrawal  of  the 
flower  of  the  population  on  the  Continent  at  the  most 
critical  time  of  life  from  civil  associations  ;  the  effect 
of  American  competition  on  agriculture,  small  and 
large  ;  the  undoubted  fact  that,  with  the  increased 
power  of  machinery  working  at  full  speed,  markets 
for  commodities  may  be  glutted  in  an  incredibly 
short  space  of  time — all  these  permanent  causes  for 
anxiety  have  been  still  further  aggravated  by  the 
famine  in  Russia  and  the  revolutionary  movement  in 
China,  the  consequences  of  which  none  can  fully 
foresee.  More  than  a  year  after  the  crisis  of  1890 
and  the  careful  arrangements  made  to  avoid  a  panic, 
the  whole  financial  firmament  of  England  is  darkened 
by  a  cloud  of  distrust,  and,  in  spite  of  a  protracted 


THE  NINETEENTH  CENTURY.  i6i 

period  of  caution  and  taking  in  of  sail,  there  is  all  the 
doubt  and  uncertainty,  or  more  than  all  the  doubt  and 
uncertainty,  which  would  have  followed  had  the  crisis 
pursued  the  same  course  as  those  of  1857  and  18G6. 

Any  attempt  to  fully  analyse  the  effects  of  the 
crisis  upon  other  countries  would  extend  this  little 
volume  beyond  the  limits  of  its  original  plan.  But  it 
is  apparent  already  that  the  extraordinary .  harvest 
in  the  United  States,  now  having  a  population  of 
62,000,000,  with  200,000  miles  of  railway,  as  well  as 
the  proportionately  good  harvest  in  Canada,  must,  in 
spite  of  all  hostile  tariffs,  have  a  beneficial  effect  on  the 
situation  temporarily  at  least.  It  is  even  possible  that 
the  natural  resources  of  the  Argentine  Republic,  with 
its  90,000,000  sheep,  25,000,000  cattle,  7,000,000  acres 
of  tilled  land,  and  7,000  miles  of  railway,  may  enable 
the  comparatively  sparse  population  to  cope  in  part 
with  its  enormous  load  of  debt  if  political  quiet  is 
maintained. 

But  the  main  facts  of  our  modern  industrial  system 
remain  unchanged  by  even  the  development  of  such  vast 
natural  wealth  as  that  of  North  and  South  America.  In 
the  former  great  country  the  pressure  of  mortgages 
upon  the  farmers  of  the  West,  the  vast  railroad  rings 
and  industrial  monopolies  which  have  been  built  up,  the 
impossibility  so  far  of  obtaining  any  control  for  or  by 
the  people  of  the  huge  machine  of  capitalism  even 
under  democratic  and  republican  forms,  leave  the  mass 
of  the  producers  as  much  at  the  mercy  of  the  money- 
lords  as  they  are  in  Europe,  and  the  crises  of  the  United 
States  have  been  in  some  respects  worse  than  those  of 
the  old  world.     In  the  Argentina,  difficulties  have  but 

L 


1 62  COMMERCIAL  CRISES  OF 

just  begun  ;  but  there  also,  what  is  perhaps  the  finest 
undeveloped  country  in  the  world,  has  not  protected 
some  of  the  most  industrious,  sober,  and  thrifty  im- 
migrants that  ever  went  out  to  seek  their  fortune 
from  undergoing  starvation  and  misery,  where  they 
looked  for  well-being  and  happiness  in  return  for  hard 
work. 


THE  NINETEENTH  CENTURY.  163 


CHAPTER  X. 

REMEDIES. 

Having  thus  come  to  an  end  of  this  brief  and  neces- 
sarily very  incomplete  sketch  of  the  great  industrial 
crises  of  the  nineteenth  century  covering  the  entire 
period,  from  tlie  time  when  steam  had  become  the 
chief  engine  in  modern  production  and  transportation 
to  the  date  when  electricity  w^as  manifestly  being 
made  ready  to  take  in  turn  the  superior  place,  certain 
main  features  strike  us  most  forcibly. 

Industrial  crises  and  the  consequent  over-population 
which  they  create  are  quite  independent — 

1.  Of  population  whether  rapidly  increasing  or  sta- 

tionary, as  may  be  seen  from  the  instances  of 
Great  Britain  and  France. 

2.  Of  forms  of  Government,  whether  they  be  despotic, 

constitutional-monarchic,  or  republican. 

3.  Of    extent    of   territory  and    unoccupied  land,  as 

witness  the  United  States,  Australia,  and  the 
Argentine  Republic. 

4.  Of  restricted  or  inflated  currency ;  of  the  gold  or 

silver  standard. 

5.  Of  any  special  system  of  banking;   the  soundest 

methods  doing  no  more  than  limit  the  range  of 
the  calamity :  the  least  sound  doing  no  more 
than  extend  it. 


l6+  COMMERCIAL  CRISES  OF 


6.  Of  free-trade  or  protection.     Free-trade  affords  no 
protection :  protection  guarantees  no  free-trade. 

Yet  we  have  in  these  crises  manifestly  social  cata- 
clysms which  are  caused  by  the  action  of  man  in 
society,  and  which  man  in  society  can  master  when  he 
comprehends  what  is  going  on  around  him. 

In  order  to  do  away  with  these  recurrent  crises 
and  collapses  of  trade,  we  have  to  harmonise  the  two 
sides  of  wealth-creation,  and  to  lead  the  way  to  the 
period  when  production  having  already  become,  as  it 
has  become,  purely  social,  appropriation  and  exchange 
shall  become  purely  social  too. 

In  order  to  bring  this  about,  the  organised  power 
of  the  State,  of  the  Municipal  Council,  of  the  District 
Assembly,  each  acting  in  concert  and  co-operation 
with  the  other,  must  step  in  to  reduce  to  order  the 
existing  anarchy,  which  produces  such  baneful  effects, 
and  to  establish  an  equilibrium  between  production, 
consumption,  and  general  distribution  for  the  benefit 
of  all.  Whatever  name  we  may  call  this  by,  it  in- 
volves organised  co-operation  in  which  every  adult 
member  of  the  community  will  take  an  intelligent 
and  active  part. 

But  we  have  not  arrived  at  the  time  when  the 
majority  of  the  people  can  regard  land,  machinery, 
raw  material,  and  the  useful  products  which  are  the 
result  of  the  application  of  labour  to  this  land, 
machinery,  and  raw  material,  except  from  the  point 
of  view  of  private  property  and  profit  to  the  in- 
dividual. 

That  is  quite  true,  and  that  is  why,  if  we  wish  to 
put   a   stop   to   the   present   anarchy  and   solve  the 


THE  NINE  TEE  NTH  CENTUR  V.  165 

present  economical,  and  therefore  social  and  class, 
antagonism  without  bloodshed  and  bitter  war,  it  is 
necessary  to  show  that  the  course  of  human  develop- 
ment is  at  the  present  time  towards  this  period  of 
social  harmony,  instead  of  sticking  fast  in  the  existing 
muddle  as  some  contend.  To  show,  that  is,  that  man- 
kind in  all  civilised  countries  is  at  this  very  moment 
proceeding,  unconsciously  and  with  much  trouble  and 
suffering,  to  bring  about  that  which,  if  the  community 
were  acting  consciously,  could  be  done  much  more 
rapidly  and  without  any  suffering  at  all. 

Now  we  have  seen  how  capitalists  themselves  are 
all  the  time  turning  their  individual  businesses,  whether 
distributive  or  productive,  into  limited  companies. 
But  this  is  distinctly  a  step  towards  socialisation,  in- 
asmuch that  it  at  once  becomes  apparent  that  a  body 
of  shareholders,  who  know  nothing  whatever  about 
the  business  of  which  they  are  by  a  legal  convention 
the  owners,  and  who  employ  a  manager  to  conduct 
the  concern  for  them,  are  by  no  means  more  capable 
of  carrying  it  on  than  are  those  whom  they  employ 
to  do  the  work ;  seeing  that  the  workers  might  with 
equal  fitness  retain,  if  necessary,  the  same  manager  as 
has  been  appointed  by  the  shareholders. 

The  companies,  however,  when  formed,  are  now  as 
anxious  to  restrict  competition  as  formerly  they  were 
to  intensify  it.  They  have  discovered,  of  course  en- 
tirely in  their  own  interests,  that  an  unceasing  com- 
petition to  produce  cheaper  and  cheaper  means  that 
when  the  smaller  firms  are  crushed  out  the  bigger 
firms  must  ruin  one  another  too.  None  wishes  to  risk 
all  on  the  chance  of  surviving  the  vviiole  of  his  com- 


1 66  COMMERCIAL  CRISES  OF 

petitors.  Hence  the  tendency,  continuall}^  growing 
stronger  in  spite  of  failures,  for  combination  to  replace 
competition  in  the  sphere  of  production,  as  it  has 
already  done  to  a  great  extent  in  the  field  of  trans- 
port and  distribution. 

This  combination,  if  carried  sufficiently  far,  may, 
and  even  now  in  part  does,  limit  "  over-production  " 
and  maintain  prices  in  certain  trades,  but  it  cannot 
harmonise  the  interests  of  the  wage-earners  with  the 
interests  of  the  employers ;  because  it  must  always  be 
to  the  advantage  of  employers,  whether  individuals 
or  companies,  to  make  use  of  improved  machinery  in 
order  to  maintain  the  agreed  rate  of  output  with  a 
less  expenditure  of  labour.  This  would  necessarily 
entail  a  discharge  of  some  of  those  persons  who  were 
previously  employed,  and  one  of  the  worst  features  of 
crisis  would  equally  appear  as  before  in  a  number  of 
people  thrown  out  of  work  by  the  very  improvement 
of  the  means  of  creating  wealth.  Moreover,  the  sur- 
plus population  thus  engendered  would  be  in  com- 
petition with  their  fellows  in  employment  and  the 
rate  of  wages  must  eventually  be  reduced.  Combi- 
nation between  employers  will  probably  follow  to 
keep  up  prices.  By  degrees,  in  ordinary  circum- 
stances, the  combination  might  be  broken  down  as 
we  have  seen  it  was  in  the  instances  of  copper  and 
salt.  But  the  tendency  of  large  companies  to  restrict 
that  free  competition,  which  not  long  ago  was  the 
watchword  of  the  capitalist  class,  is  clearly  manifested 
in  the  United  States  and  in  Great  Britain,  and  in 
some  cases,  such  as  the  Standard  Oil  Company  of 
America    and    tlie    screw   trade   of    Birmingham,   a 


THE  NINETEENTH  CENTURY.  167 

practical  monopoly  has  been  successfully  maintained 
for  many  years. 

But  if  it  is  to  the  interest  of  the  capitalist  class  to 
change  their  tactics,  whereby  they  have  gained  su- 
premacy, in  order  to  keep  up  a  rate  of  profits  threat- 
ened by  the  very  keenness  of  their  own  competition  ; 
if  also  the  large  capitals  are  beating  tlie  small,  and 
companies  and  co-operative  stores  are  absorbing  or 
crushing  individual  producers  and  distributors  as  we 
see  they  are ;  it  cannot  be  but  to  the  advantage  of 
the  whole  community  that  some  steps  should  be 
taken  to  control  or  to  handle  the  increasing  powers 
which  are  thus  growing  up  under  the  protection  of 
the  law. 

For  on  the  other  side,  as  likewise  the  history  of 
this  century  shows  us,  the  workers  themselves  are 
beginning  to  understand  better  than  ever  the  essential 
truths  of  that  antagonism  between  social  production 
and  individual  or  company  appropriation  of  which 
we  have  spoken.  They,  too,  are  more  anxious  than 
ever  tliey  were  to  lessen  the  competition  which  re- 
duces their  wages,  and  to  remove  the  causes  of  those 
ups  and  downs  of  trade  which  occasion  their  excessive 
work  at  overtime  in  one  year,  only  to  be  followed 
by  worklessness  and  low  wages  in  the  next.  Nor  are 
their  combinations  any  longer  confined  to  the  skilled 
trades  or  to  one  country.  In  the  same  way  that 
capitalists  gather  together  in  international  banks,  in- 
ternational promoting  agencies,  and  international 
industrial  enterprises,  regardless  of  that  patriotism 
which  is  frequently  appealed  to ;  in  like  manner  the 
workers  also  are  banding  themselves  together  as  a 


i6S  COMMERCIAL  CRISES  OF 

class  internationall}^  against  the  controllers  of  the 
system  of  production  which,  being  based  upon  profit 
only,  is  worked  entirely  contraiy  to  their  interest. 
They  thus  give  expression  in  the  shape  of  long  strikes, 
and  vigorous  protests  wherever  they  can  get  a  hearing, 
to  that  economic  antagonism  which  they  feel  them- 
selves to  be  the  victims  of.  Machines  are  now  no 
lono'er  broken  nor  are  factories  burnt  down.  The 
workers'  object  now  is  to  preserve,  in  order  to  take 
possession  of  and  control,  the  growing  forces  of  pro- 
duction which  are  being  used  against  them. 

It  is  this  class  antagonism,  developed  on  a  larger 
scale  than  ever  before  in  every  civilised  country, 
which  has  rendered  the  social  question  the  one  im- 
portant question  of  the  time ;  which  gave  rise  to  the 
Berlin  Labour  Conference,  and  which  has  set  on  foot 
the  Royal  Commission  on  Labour.  To  say  that  it 
oucrht  not  to  exist  is  intelligible  :  to  state  that  it  does 
not  exist  is  absurd. 

That  the  necessity  for  a  solution  is  being  recog- 
nised in  Great  Britain  cannot  be  disputed.  The 
capitalists  themselves  are  shaken  in  their  confidence  of 
being  able  to  handle  their  own  machinery.  The  long 
slow  drag  piior  to  the  last  period  of  inflation  and 
then  the  Baring  crash  opened  the  eyes  of  many  of  the 
manufacturers,  wliile  the  existing  uncertainty  is  in- 
fluencing many  more.  The  literary  class  and  profes- 
sional men,  who  are  not  directly  interested  in  the 
manipulation  of  profits,  are  already  even  better  pre- 
pared to  accept  the  Social-Democratic  or  Collectivist 
solution  which  is  inevitable  than  are  the  workers 
themselves. 


THE  NIMETEENTH  CENTURY.  169 

Now  the  influence  of  the  State,  as  the  organised 
force  of  the  community,  has  all  the  wliile  been  extend- 
ing, and,  so  strong  is  the  pressure  of  the  current  of 
events  upon  politicians  and  the  House  of  Commons, 
that  almost  every  measure  proposed  by  either 
political  party  is  avowedly  or  unavowedly  founded 
upon  Collectivist  as  opposed  to  Individualist  theories. 

The  problem  is  to  reduce  tbe  existing  anarchy  to 
order,  in  face  of  the  development  of  international 
crises  and  the  growing  international  solidarity  of  the 
capitalist  class.  This  is  manifestly  no  easy  matter  to 
solve  even  in  Great  Britain,  the  country  which,  owing 
to  its  economical  development,  its  commercial  and 
financial  position,  its  preponderance  of  great  cities, 
and  its  geographical  situation,  must  inevitably  take 
tlie  lead  in  any  important  social  transformation.  For 
England,  more  than  any  other  nation,  is  dependent 
upon  foreign  countries  so  largely,  and  in  some  cases 
so  exclusively,  for  her  supplies  of  food  and  the  raw 
materials  of  her  manufactures,  that  nothing  can  be 
done  without  touching  exterior  interests  at  some  point. 

Nevertheless,  any  attempt  at  regulation  and  re- 
organisation must  begin  in  one  nation  first,  and  Eng- 
land, which  took  the  lead  in  the  development  of  the 
capitalist  system,  seems  destined  to  take  the  lead  also 
in  its  transformation.  Thus  the  needs  of  the  home 
market  within  certain  limits  could  easily  be  ascer- 
tained, and  would  be  easily  ascertained  now  if  our 
statistical  departments  were  not  so  miserably  behind- 
hand. The  State,  for  example,  in  addition  to  being 
the  greatest  employer  of  labour  in  the  country  by  far, 
is  also  directly  and  indirectly  the  greatest  consumer. 


I70  COMMERCIAL  CRISES  OF 

Leaving  aside  the  temporary  advantage  which 
would  result  by  the  absorption  of  unemployed  labour 
from  the  enactment  by  law  of  an  Eight  Hours'  Day 
and  the  suppression  of  overtime  for  all  State  workers, 
together  with  the  consequently  increased  demand  for 
goods,  it  is  obvious  that  an  average  of  the  require- 
ments of  all  employees  might  easily  be  arrived  at,  in  so 
far  as  the  necessaries  of  life  are  concerned,  even  as 
matters  stand  to-day.  The  enactment  of  a  minimum 
wage  of  say  30s.  or  35s.  a  week  would  only  mean 
that  the  standard  of  life  in  the  lower  grades  of  labour 
would  be  raised,  and,  therefore,  the  demand  for  such 
necessaries  would  again  increase. 

But  if  we  add  to  the  numbers  who  are  directly 
employed  by  the  State  the  persons  who  are  indi- 
rectly employed,  such  as  those  who  supply  clothes, 
boots,  and  food  to  the  Government  servants,  includ- 
ing, of  course,  the  army,  navy,  and  militia ;  to  these 
add  the  colliers  who  supply  coal,  the  ironworkers  who 
supply  iron,  and  others  who  in  turn  supply  them ;  if 
again  we  consider  the  men  and  women  employed  by 
our  various  municipalities  and  other  local  authorities, 
and  the  workers  who  supply  them ;  and  if  we  further 
add  to  the  numbers  of  the  State  and  municipal 
functionaries  and  servants  the  tens  of  thousands  of 
men  who  are  engaged  on  railways  and  other 
monopolies — if  we  calculate  all  these  producers  and 
distributors  as  a  portion  of  the  recognised  or  un- 
recognised public  service,  we  arrive  at  very  large 
figures  indeed.  So  far  as  they  are  concerned  there 
need  be  no  ups  and  downs  of  trade  ;  for  the  object 
here  at  least  must  be — assumins:  for  the  moment  the 


THE  NINE  TEE  NTH  CENTUR  Y.  171 

elimination  of  the  middleman  and  the  capitalist,  in  the 
same  way  as  he  is  eliminated  in  a  Government  estab- 
lishment— to  bring  consumers  and  producers  together 
without  profit,  to  the  common  gain.  Instead  of  this 
even  State  contracts  have,  until  lately,  been  conducted 
on  the  sweating  system,  and  all  labour  employed  by 
the  State  has  been  beaten  down  to  the  lowest  com- 
petitive w^age.  Worse  still,  in  the  Government 
arsenals  and  factories  excessive  overtime  is  worked  at 
some  periods,  though  outside  thousands  are  unem- 
ployed ;  and  at  other  periods  men  are  discharged  for 
lack  of  work  to  give  them. 

But,  manifestly'',  if  the  Government  under  the  con- 
trol of  the  profit-making  classes  is  compelled  to  keep 
up  State  arsenals  and  dockyards.  State  post-ofiice  and 
parcel  post,  State  banks  and  factories;  and  at  the  same 
time  municipalities  are  taking  control  of  their  gas- 
works, and  water- works,  and  tramways,  and  road- 
making,  and  in  some  degree  of  public  building ; 
there  can  be  no  insuperable  difficulty  in  extending 
the  operations  of  the  State  and  municipalities  to 
the  various  productive  enterprises  which  supply 
these  State  and  municipal  bodies  with  what  they 
need. 

Unfortunatel3%  all  our  leading  statesmen  and  offi- 
cials, all  our  principal  economists  and  publicists,  have 
been  brought  up  in  a  school  which  disenables  them 
from  looking  at  the  production  and  distribution  of 
wealth  as  a  public,  collective  business.  Their  anxiety 
for  the  welfare  of  the  individual  is  so  great  that 
they  crush  individuality  by  competition :  they  so 
love  order  that  they  foster  industrial  anarchy:  they 


t72  COMMERCIAL  CRISES  OF 

SO  dread  the  State  that  the}"  favour  the  growth  of 
practically  irresponsible  and  uncontrolled  monopolies 
such  as  we  see  all  around  us. 

But  workers  are  increasingly  anxious  to  use  the 
collective  power  for  the  advantage  of  the  community, 
and  to  master  through  the  State  and  municipal 
organisations  the  great  productive  and  distributive 
agencies  alike  of  the  Government  and  of  private 
companies,  so  as  to  attain  that  end.  When  once  we 
admit  that  the  increased  power  to  produce  wealth 
should  be  thus  used  for  the  benefit  of  the  many  and 
not  for  the  profit  of  the  few,  no  long  time  will  elapse 
thereafter  before  steps  are  taken,  by  collective  organi- 
sation of  industry  and  exchange,  to  prevent  the 
periodical  dislocation  of  trade  by  great  crises,  which 
are  as  wasteful  as  they  are  in  a  sense  absurd. 

There  is  no  possibility  of  reducing  the  existing 
anarchy  in  production  and  distiibution  to  order  by 
anything  short  of  this  collective  ownership  of  the 
great  means  and  instruments  of  production  and  dis- 
tribution. This  inevitably  involves  the  overthrow  of 
private  property  or  company  ownership  of  those  great 
means  and  instruments  of  creating  and  distributing 
wealth.  And  this  again  carries  with  it  the  disappeai*- 
ance  of  the  class  State,  and  the  establisliment  of  an 
organised  communism  in  which  private  ownership 
will  be  confined  within  the  narrowest  possible  limits. 

Those  wlio  talk  of  "  Municipal  Socialism  "  as  if  it 
were  possible  to  segregate  mankind  into  petty  little 
units  with  no  power  to  regulate  the  general  produc- 
tion, first  nationally  and  then  internationally,  over- 
look  the   most   strikinir    features   of    the    economic 


THE  NINE TEENTH  CENTUR  V.  1 73 

development  which  is  going  on  around  them.  In  like 
manner,  the  proposal  to  ameliorate  existing  conditions 
by  taxation  of  rent,  disregards  the  truth  that  modern 
rents  presuppose  the  existence  of  competition  and 
take  for  granted  that  capitalist  supremacy,  which 
such  taxation,  even  were  it  possible  to  carry  it  into 
effect,  would  leave  untouched. 

Mere  palliatives,  such  as  those  which  have  been 
advocated  for  years  by  the  Social-Democratic  Federa- 
tion, and  are  now  being  adopted  in  some  shape  by 
both  the  existing  capitalist  political  factions,  are, 
after  all,  but  palliatives;  although  the  men  who  have 
been  most  active  in  championing  them,  have  carried 
on  this  "  practical "  propaganda  with  the  direct 
object  of  preparing  the  way  to  a  complete  and,  if 
possible,  peaceful  transformation.  But  wage-slaves  un- 
der better  conditions  remain  wage-slaves  still ;  and  the 
causes  of  the  economic  and  class  antagonism  remain 
untouched  by  any  half- measures.  No  improvements 
of  the  capitalist  system  of  production  can  change  or 
seriously  modify  the  bitter  struggle  which  must  go 
on  so  long  as  that  system  endures  in  any  shape. 

The  time  is  coming  when  the  expropriators  will  be 
themselves  expropriated,  and  it  is  for  the  rising  gene- 
ration of  Englishmen  to  decide  whether  in  this  country 
the  substitution  of  organised  co-operation  for  anarchical 
competition  shall  be  brought  about  consciously  and 
peacefully,  or  unconsciously  and  forcibly.  The  next 
commercial  crisis,  which  all  careful  observers  can  easily 
detect  is  approaching,  will,  by  reason  of  the  tre- 
mendous scale  on  which  production  is  now  carried  on 
in  every  civilised  country,  be  worse  than   any  yet 


174     COMMERCIAL  CRISES  OF  THE  i^TH  CENTURY. 

experienced.  The  issue  of  one  pound  notes  in  such 
circumstances  is,  indeed,  to  administer  a  pill  to  an 
earthquake.  Such  an  issue  can  no  more  prevent  a 
commercial  crisis  in  the  nineties  than  a  similar  issue 
did  in  the  twenties ;  and  Mr.  Goschen's  proposal  will 
probably  be  referred  to  in  time  to  come  as  a  remark- 
able instance  of  the  incapacity  of  our  ablest  financiers 
to  reason  outside  of  the  limited  and  vicious  circle  of 
capitalist  finance. 

Nine  recognised  commercial  crises  in  this  nine- 
teenth century,  all  deeply  affecting  the  welfare  of 
Great  Britain  and  other  civilised  countries,  and  each 
in  succession  having  a  more  enduring  influence  fcir 
evil  than  its  forerunner,  must  surely  prove  to  every 
one  who  is  not  blinded  by  his  own  supposed  interests 
that  capitalism  has  outlived  its  usefulness,  and  in ust 
be  replaced  by  another  and  higher  form  of  industrial 
and  social  organisation.  After  such  terrible  warnings, 
to  refuse  to  examine  into  facts,  and  to  proceed  farther 
on  the  happy-go-lucky  princii)le  of  awaiting  "  pres- 
sure from  without,"  is  only  to  court  that  disaster 
which  pessimists  declare  is  inevitable,  do  what  we 
may. 


THE   END, 


Cowan  6^  Co.,  Li)iiiUd,  Printers,  Perth, 


OPINIONS     OP     THE     PRESS 

ON    THE 

SOCIAL   SCIENCE   SERIES. 


The  Principles  of  State  Interference  '  is  another  of  Messrs.  Swan  Sonnen- 
schein's  Series  of  Handbooks  on  Scientific  Social  Subjects.  It  would  be 
fitting  to  close  our  remarks  on  this  little  work  with  a  word  of  com- 
mendation of  the  publishers  of  so  many  useful  Yolumes  by  eminent 
writers  on  questions  of  pressing  interest  to  a  large  number  of  the  com- 
munity. We  have  now  received  and  read  a  good  number  of  the  handbooks 
which  Messrs.  Swan  Sonnenschein  have  published  in  this  series,  and  can 
speak  in  the  highest  terms  of  them.  They  are  written  by  men  of  con- 
siderable knowledge  of  the  subjects  tliey  have  undertaken  to  discuss;  they 
are- concise;  they  give  a  fair  estimate  of  the  progress  which  recent  dis- 
cussion has  added  towards  the  solution  of  the  pressing  social  questions 
of  to-day,  are  well  up  to  date,  and  are  published  at  a  price  within  the 
resources  of  the  public  to  which  they  are  likely  to  be  of  the  most  use."- 
Westminster  Bevieiv,  July,  1891. 

"  The  excellent  '  Social  Science  Series,'  which  is  published  at  as  low  a  price 
as  to  place  it  within  everybody's  reach."— Revieiv  of  Reviews. 

'  A  most  useful  series.  .  .  .  This  impartial  series  welcomes  both  just  writers 
and  nn]ust."~Manchester  Guardian. 

The  Social  Science  Series  '  is  doubtless  doing  useful  service  in  calling  atten- 
tion to  certain  special  needs  and  defects  of  the  body  politic,  and  pointing 
out  the  way  to  improvement  and  retorm."— Bookseller. 

•  Convenient,  well-printed,  and  moderately-priced  volumes.  "-i^Pi/woZa's  News- 

paper. 

•  There  is  a  certain  impartiality  about  the  attractive  and  well-printed  volumes 

which  foi-m  the  series  to  which  the  works  noticed  in  this  article  belong. 
There  is  no  editor  and  no  common  design  beyond  a  desire  to  redress  those 
errors  and  irregularities  of  society  which  all  the  writers,  though  they  may 
agree  in  little  else,  concur  in  acknowledging  and  deploring.  The  system 
adopted  appears  to  be  to  select  men  known  to  have  a  claim  to  speak  with 
more  or  less  authority  upon  the  shortcomings  of  civilisation,  and  to  allow 
each  to  propound  the  views  which  commend  themselves  most  stron-ly  to 
his  mind,  without  reference  to  the  possible  flat  contradiction  which  may 
be  forthcoming  at  the  hands  of  the  next  contributor."— ij^erar;/  World. 

•  The  SociPl  Science  Series '  aims  at  the  illustration  of  all  sides  of  social  and 

econon.»o  truth  and  ervor."— Scotsman. 


SWAN   SONNENSCHEIN   &   CO.,    LONDON. 


SOCIAL   SCIENCE   SERIES. 

SCARLET   CLOTH,    EACH  2s.    6(1. 


1.  Work  and  Wages.  Prof.  J.  E.  Thobold  TIogers. 

"  Nothing  that  Professor  Rogers  writes  can  fail  to  be  of  interest  to  thoughtful 
people. " — Atheiuxum. 

2.  Civilisation  :  its  Cause  and  Cure.  Edwabp  Cabpemteb. 

"  No  passing  piece  of  polemics,  but  x  permanent  possession." — Scottish  Review. 

3.  Quintessence  of  Socialism.  Dr.  Schaffle. 

"  Precisely  the  manual  needed.    Brief,  lucid,  fair  and  wise." — Britith  Weekly. 

4.  Darwinism  and  Politics.  D.  G.  Ritchie,  M.A.  (Oxon.). 

New  Edition,  with  two  additional  Essays  on  Human  Evolution. 
"  One  of  the  most  suggestiTe  books  we  hare  met  with." — Literary  World. 

5.  Religion  of  Socialism.  E.  Belfobt  Bax. 

6.  Ethics  of  Socialism.  E.  Beltobt  Bax. 

"  Mr.  Bax  is  by  far  the  ablest  of  the  English  exponent*  of  Socialism."—  Wettmitxtter 
Review. 

7.  The  Drink  Question.  Dr.  Kath  Mitchell. 

"  Plenty  of  interesting  matter  for  reflection. ' — Graphic. 

8.  Promotion  of  General  Happiness.  Prof.  M.   Macmillan. 

"  A  reasoned  account  of  the  most  advanced  and  most  enlightened  utilitarian  doc- 
trine in  a  clear  and  readable  form." — Scottman. 

9.  England's  Ideal,  &c.  Edwabd  Oabpenteb. 

"  The  literary  power  is  unmistakable,  their  freshness  of  style,  their  humour,  and 
their  enthusiasm." — Pall  Mall  Gatette. 

10.  Socialism  in  England.  Sidney  Webb,  LL.B. 

' '  The  best  general  view  of  the  subject  from  the  modern  Socialist  aide."— Alhenaum. 

11.  Prince  Bismarck  and  State  Socialiim.  W.  H.  Dawson. 

"  A  succinct,  well-digested  review  of  German  social  and  economic  legislation  since 

1^0." — Saturday  Review. 

12.  Godwin's  Political  Justice  (On  Property).  Edited  by  H.  S.  Salt. 

"  .Shows  Godwin  at  his  best ;  with  an  intereiting  and  informing  introduction."— 
Glcs'jow  Herald. 

13.  The  Story  of  the  French  Revolution.  B.  Bblfobt  Bax. 

"  A  trustworthy  outline." — Scotsman. 

14.  The  Co-operative  Commonwealth.  Laubencb  Gbonlund. 

"  An  independent  exposition  of  the  Socialism  of  the  Marx  achooV— Contemporary 
Revific. 

15.  Essays  and  Addresses.  Bernabd  Bosanqubt,  M.A.  (Oxon.). 

"  Ought  to  be  in  the  hands  of  every  student  of  the  Nineteenth  Century  spirit."— 
Echo. 

"  No  one  can  complain  of  not  being  able  to  understand  what  Mr.  Bosanquet 
means."— P((,/i  Mall  Gazette. 

16.  Charity  Organisation.  C.  S.  Loch,  Secretary  to  Charity  Organisation 

Society. 
"  A  perfect  little  manual." — Athenceum. 
"  Deserves  a  wide  circulation."— Scofsniait. 

17.  Thoreau's  Anti-Slavery  and  Reform  Papers.  Edited  by  H.  S.  Salt. 

"  An  interesting  collection  of  essays." — Literary  World. 

18.  Self-Help  a  Hundred  Years  Ago.  G.  J.  Holyoake. 

"  Will  be  studied  with  much  benefit  by  all  who  are  interested  in  the  amelioration 
of  the  condition  of  the  poor." — Morning  Post. 

19.  The  New  York  State  Reformatory  at  Elmira.  Alexandeb  Winteb. 

With  Preface  by  Havelock  Ellis. 
"  A  valuable  contribution  to  the  literature  of  penology."— Black  and  White. 


SOCIAL    SCIENCE    SERIES— {Continued). 

20.  Common  Sense  about  Women.  T.  W.  Higginson. 

"  An  admirable  collection  of  papers,  advocating  in  the  most  liberal  spirit  the 
emancipation  of  women." — Woman's  Herald. 

21.  The  Unearned  Increment.  W.  H.  Dawson. 

"A  concise  but  comprehensire  volume." — Echo. 

22.  Our  Destiny.  Laurence  Geonlund. 

"  A  very  vigorous  little  book,  dealing  with  the  influence  of  Socialism  on  morals 
and  religion." — Daily  Chronicle. 

23.  The  Working-ClasB  Movement  in  America. 

Dr.  Edwabd  and  E.  Maex  Aveling. 
"  Will  give  a  good  idea  of  the  condition  of  the  working  classes  in  America,  and  ol 
'-,<,  yarious  organisations  which  they  hare  formed."—  .Scot.';  Ltoder. 

24.  Luxury.  Prof.  Emile  de   Laveleye. 

"  An  eloquent  plea  on  moral  and  economical  grounds  for  simplicity  of  life."— 
Acadtmy. 

25.  The  Land  and  the  Labouari.  Eev.  C.  W.  Stubbs,  M.A 

"  This  admirable  book  should  b«  circulate. I  in  every  village  in  the  country."— 
ManctutUr  (Juardian. 

26.  The  Evolution  of  Property.  Paul  LAPAEGrE. 

"Will  prove  interesting  and  profitable  to  all  students  of  economic  history."— 
ScoUnmn. 

27.  Crime  and  ita  Causes.  W.  Douglas  Morbison 

"  Can  hardly  fail  to  suggest  *o  all  readers  several  new  and  pregnant  reflections  on 
the  sahlect." —Anti-Jacobin. 

28.  Principles  of  State  Interference.  D.  G.  Eitchie,  M.A 

"  An  interesting  contribution  to  the  controversy  on  the  functions  of  the  State."— 
Glasgow  Herald. 

29.  German  Socialism  and  F.  Lassalle.  W.  H.  Dawsok. 

"  As  a  biographical  history  of  German  Socialistic  moTement«  during  this  century 
it  may  be  accepted  as  complete."— 5riit»A  Weekly. 

30.  The  Purse  and  the  Conscience.  H.  M.  Thompson,  B.A.  (Cantab.). 

"  Shows  common  sense  and  fairness  in  his  arguments."— Scot»»ian. 

31.  Origin  of  Property  in  Land.      Fustel  de   Coulanges.      Edited,  with  an 
Introductory  Chapter  on  the  English  Manor,  by  Prof.  W.  J.  Ashley,  M.A. 

"  His  views  are  clearly  stated,  and  are  worth  reading."— Saturday  Review. 

32.  The  English  Republic.  W.  J.  Linton.     Edited  by  Kineton  Parkes. 

"  Characterised  by  that  vigorous  intellectuality  which  has  marked  his  long  life  of 
literary  and  artistic  activity."— Giojffow  Herald. 

33.  The  Co-Operative  Movement.  Beatrice  Potter. 

"  Without  doubt  the  ablest  and  most  philosophical  analysis  of  the  Co-Operative 
Movement  which  has  yet  been  produced."— Speaker. 

34.  Neighbourhood  Guilds.  Dr.  Stanton  Coit. 

"  A  most  suggestive  little  book  to  anyone  interested  in  the  social  question."— 
Pcdl  Mall  Gazette. 
85.  Modern  Hnmanlsti.  J-  M.  Eobebtson. 

"  Mr.  Robertson's  style  is  excellent— nay,  even  brilliant— and  his  purely  literary 
criticisms  bear  the  mark  of  much  acumen."— Times. 

36.  Outlooks  from  the  Hew  Standpoint.  E.  Belfobt  Bax 

"  Mr.  Bax  is  a  very  acute  and  accomplished  student  of  history  and  economics 
— Daily  Chronicle. 

37.  Distributing  Co-Operative  Societies.     Dr.  Luigi  Pizzamiglio.      Edited  by 

F.  J.  Snell. 

"  Dr.  Pizzamiglio  has  gatliered  together  and  grouped  a  wide  array  of  facts  and 
statistics,  and  they  speak  for  themselves."- Spcai-€»-. 

38.  Collectivism  and  Socialism.        By  A.  Nacquet.      Edited  by  W.  Heaford. 

"  An  admirable  criticism  by  a  well-known  French  politician  of  the  New  Socialism 
of  Marx  and  Lassalle."— Z)ai2v  Chronicle. 


SOCIAL    SCIENCE    ^EHIES- ■{Continued). 

39.  The  London  Programme.  Sidney  Webb,  LL.B 

"  Brimful  of  excellent  ideas."— Anti- Jacobin. 

40.  The  Modern  State.  Paul  Leroy  Beauliku. 

"  A  most  iiiterestins  book  ;  well  worth  a  place  in  the  library  of  every  soc);i' 
inquirer." — N.B.  Ecoiwniist. 

41.  The  Condition  of  Labour.  Henky  George. 

"  Written  with  striking  ability  and  sure  to  attract  attention."— JTeiccasi;*  Chronicle. 

42.  The  Revolutionary  Spirit  preceding  the  French  Revolution. 

Felix  Rocquain.     With  a  Preface  by  Professor  Huxley. 

"  The  student  of  the  French  ReTolution  will  find  in  it  a:i  excellent  introduction  tc 
the  study  of  that  catastrophe."— Scofs/ztan. 

43.  The  Student's  Marx.  Edwabd  Aveling,  D. Sc. 

"  One  of  the  most  practically  useful  of  any  in  the  Series."— OTasjrow  Ilmdd. 

44.  A  Short  History  of  Parliament.  B.  C.  Skottowe,  M.A.  (    xon.). 

"  Deals  very  carefully  and  completely  with  this  side  of  constitutional  history."— 
Spectator. 

45.  Poverty :  Its  Genesis  and  Exodus.  J.  G.  Godahd. 

"  He  states  the  problems  with  great  force  and  clearness."— ./V.  British  Economist. 

46.  The  Trade  Policy  of  Imperial  Federation.  Maurice  H.  Hervey. 

"An  interesting  contribution  to  the  d\si:\xs%ion."— Publishers'  Circular. 

47.  The  Dawn  of  Radicalism.  J.  Bowles  Daly,  LL.D. 

"  Forms  an  admirable  picture  of  an  epoch  more  pregnant,  perhaps,  with  political 
instruction  than  any  other  in  the  world's  history."— Daiiy  Telegraph. 

48.  The  Destitute  Alien  in  Great  Britain.    Arnold  White;  Montague  Cuackan- 

THOKPE,  Q.C.  ;  W.  A.  M'Arthuk,  M.P.  ;  W.  H.  Wiliuns,  &c. 

49.  Illegitimacy  and  the  Influence  of  Seasons  on  Conduct. 

Albert  Leffingwell,  M.D. 

50.  Commercial  Panics  of  the  Nineteenth  Century.  H.  M.  Hyndman. 

DOUBLE   VOLUMES,   Each  3s.   6d. 

1.  Life  of  Robert  Owen.  Lloyd  Jonf.s. 

"  A  worthy  record  of  a  life  of  noble  a-cti^iUQs."— Manchester  Examiner. 

2.  The  Impossibility  of  Social  Democracy:   a  Second  Part  of  "The  Quintessence 

of  Socialism  ".  Dr.  A.  Schaffle. 

S.  The  Condition  of  the  Working  Class  in  England  in  1344.  Frederick  Engels. 
4.  The  Elements  of  Social  Economy.  Yves  Guyot. 

IN    PREPARATION— 
Progress  and  Prospects  of  Political  Economy.      Prof.  J.  K.  Ingram. 
Socialism  :  Scientific  and  Utopian.  Fred.  Engels. 

The  State  and  Pensions  in  Old  Age.  J.  A.  Spender  and  Arthur 

ACLAND    M.P. 

University  Extension.  Dr.  M.  E.  Sadler. 

The  Elements  of  Socialism.  Prof.  R.  T.  Ely. 

Communism  and  Anarchism.  R.  W.  Burnib. 

Catholic  Socialism.  Dr.  Nitti. 

The  Effects  of  Machinery  on  Wages.  Prof.  J.  S.  Nicholson. 

The  Fallacy  of  Saving.  John  M.  Robebtson. 


SWAN    SONNENSCHEIN   &  CO.:   LONDON. 
CHARLES     SCRIBNER'S     SONS:     NEW    YORK. 


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